Once you have found a house you want to buy, it’s natural to want to close on a house as soon as possible. But be prepared for how long it really takes. Fully closing on a house is a process with multiple steps. Nationwide, it takes on average from 45 to 50 days.
Closing is the golden moment when both you and the seller have signed the contract and the home is yours, yours, yours.
If you want to close as quickly as possible, it helps to know the factors that contribute to the length of the closing time. Once you have a handle on these factors, it can help to know ways to reduce them and make the process as smooth as possible.
A poor or even average credit score can immediately stall your closing on a house. Many lenders will not approve a mortgage application unless your credit score is rated good to excellent. In fact, if your mortgage application is denied for this reason, it can take years to repair your credit score sufficiently to be approved. Talk about delayed closing!
Check to see what your credit score is at www.annualcreditreport.com before you even think about applying for a mortgage. If you need to raise it, look at the explanations and follow the steps needed.
By the way, at final approval time, your lenders will rerun your credit report. A change in your credit report can make them call off your approval. Continue to use credit responsibly.
While mortgages insured by the United States government have advantages, such as lower down payments, they can also take considerably longer to close. The process might take a week or more than it does with conventional loans.
Part of the reason is that they must be approved by the Federal agency responsible. The Federal Housing Authority (FHA) reviews FHA loans and the Department of Veterans Affairs (VA) approves VA loans.
VA mortgages also require a Certificate of Eligibility to confirm the military service of the buyer (or spouse).
Ask your lender the average time to closing with these loans if you are eligible. The loans are given through the lender, so they are a valuable source of information. Review all the documentation needed for an FHA or VA mortgage.
Believe it or not, the season of the year can also have an effect on your time to closing. Most people look for houses in the period between Spring and early autumn. That’s because families with children want to move after the start of the new school year (and the end of the last one). You might experience delays simply because lenders, appraisers and other real estate professionals are all in peak season.
The holidays aren’t a busy time, but they are a time when many people take, well, holidays! So if you’re trying to close in mid to late December, for example, you might experience delays because necessary offices are closed. The same might occur around the Fourth of July.
Schedule your closing to take place at times that are neither the Spring to Fall peak season or major holidays, if at all possible.
To purchase a home, you are very likely going to need a mortgage. Mortgage approval can take a long time. If a cash purchase is feasible, your closing time can be greatly reduced. For most of us, however, cash purchase of a home is not a realistic aspiration.
The best thing you can do to speed along the closing process is to get preapproved for a mortgage before your start to look for a house. Preapproval not only speeds the process along, but it can also alert you to any bumps in the road that would make a lender decline to approve you for a mortgage.
Denial of a mortgage application can happen because your credit score is not high enough or because the lender feels your earnings are not sufficient to cover a mortgage. Bumps like these can derail the mortgage approval process — and thus the closing process — entirely. If you find you need a higher score or greater earnings, you can fix these issues before you begin looking for a home or consider a home more in line with your financial reality.
Even if you have received preapproval for a mortgage, however, know that lenders do a final check to make sure all systems are go once you decide on a house. They will double-check that you are still employed, with the same (or higher) income. They will look at your bank statements to make sure that you have made no sudden large purchases that affect the down payment or could affect your ability to pay.
It’s very important that you maintain the same financial profile as the one you had at preapproval until closing. Otherwise, your closing might be delayed.
Apply for preapproval of a mortgage as soon as you know you’re looking for a home.
Lenders review your financial profile with an eye to whether or not you can afford mortgage payments. Another chief reason for delay is lenders finding incomplete documentation when they either review the initial mortgage application or do the double-check of a preapproval.
To eliminate this risk, it’s very important to have the documentation your lender wants to see on hand. The documentation required for mortgage approval is extensive.
Make sure your documentation is complete. Double-check with the lender before sending in the application package.
At a minimum, gather the following documents.
In addition, lenders may flag special situations that can affect your financial life and want more information. This can happen if you have undergone a bankruptcy, a divorce or another situation that can affect your income and expenses.
If they see a large amount in your bank account that does not seem to match your earnings, they may query it. If the large amount is a gift for your down payment, let them know in advance!
To eliminate the changes that your closing will be slowed down because of special situations, let your lender know well in advance if any of these have occurred. You will need documentation about any of these situations. If you did receive a gift to help with the down payment, get a gift letter from the giver as part of your documentation.
Contact your lender if your situation has changed. Plus, don’t change your financial situation by purchasing large-ticket items!
Some lenders require proof of homeowners’ insurance before finally approving a loan. To make sure your closing isn’t delayed like this, do your research ahead of time and find a home insurance provider. To increase your savings, ask your current auto or life insurance provider about what special discounts they have for bundling plans. The average home insurance premium is $300 to $1,000 per year, so be sure to consider this when making your initial offer.
One of the main steps of the closing process is the property appraisal. The appraisal must be completed before the lender finally approves the mortgage.
Sometimes, appraisers find that the property is undervalued or overvalued. Either can happen either due to the condition of the property or the direction of the local real estate market. In either case, you may have to renegotiate the home’s price, which can add time to the closing process.
It’s always a good idea to research the going price of homes in the area before you begin home shopping. In the case of this step, your knowledge might alert you to the existence of under- or overvaluation.
Keep in touch with your lender re the progress of the appraisal. Being proactive can help avoid delays.
Part of the final approval process is performing a title search. While this is often straightforward, it is done to make sure that the owner is in possession of the title free and clear.
Difficulties might arise if a title search reveals the existence of a lien or other issue with the title. In the case of a lien, the seller will need to pay the lien. You can suggest that the seller take the lien payment out of the proceeds from the house if you want to speed it along.
At times, total searches turn up pre-existing problems, such as another party having title to the house. The seller would need to rectify these issues legally.
Keep in contact with your lender re the title search.
At times, closing can be held up by what the real estate industry calls “contingencies.” Often, this means that the seller needs to purchase a house before leaving the current one, or the buyer needs to sell before having the money to buy the new one.
If you do need to sell your home before purchasing a new one, make sure that’s agreeable to the seller. Be aware that selling can delay your closing beyond your control, though. Be sure to ask the seller about any contingencies from their end when you begin serious negotiations on the house.
Communicate from the beginning about any contingencies on your part, and proactively ask about any seller contingencies.
Having your home inspected by a professional is a crucial step. Many lenders make a satisfactory home inspection part of the approval process. If yours doesn’t, it’s prudent to make a home purchase contingent on a satisfactory home inspection.
A home inspector can find issues with the house that are not visible to the naked eye, such as improper wiring or problems with plumbing. You need to know about all these issues. It’s common for sellers to be asked to make repairs or replace items that fail inspection.
Ask if your lender hires the inspector. If not, try to get an appointment with a highly recommended inspector before your mortgage is finally approved. While a home inspection takes only a day, it can take several days or even several weeks to get an appointment.
Your time to closing will increase if a home inspector does find areas that need to be repaired or replaced.
The time it takes to make the repairs will vary, of course, depending on what is found. Discovering dry rot, mold or pest infestation might mean that contractors will have to repair structural damage as well as solve the immediate problem. Discovering that a roof needs to be replaced can mean months of repair work, depending on the season. Or any issues found might be simple to fix, such as the replacement of an old water heater.
Assess what you can do to reduce the closing time and ensure that your house is safe and up to code. Candidly discuss the likely time to completion with any contractors or repair people.
Be equally candid with the seller. While it’s common for sellers to be asked to fix problems, many may want to sell the house as-is. You will need to think about whether that is acceptable to you.
Be sure to follow up throughout the repair process. Call the seller and the lender so that movement continues.
If the lender’s feet are dragging on repairs, one solution is to negotiate on price. Ask the seller to come down on price enough to accommodate the price of the repairs. The advantage to you is that it puts the time, contractor and quality in your control rather than in the seller’s control. Negotiation might be faster than waiting for the seller to make the repair.
You can cut the time to closing by agreeing to live in the house as it’s being fixed, if that’s feasible. It may be, for certain type of repairs. But be aware that some lenders will not finally approve a mortgage until the house is fixed.
At last, the day of closing arrives. Time is a consideration here as well. Don’t expect to take just a few hours off work on closing day. It’s a lengthy process. Take an entire day.
It’s very important to know the documentation required in advance. Don’t rely on anecdotes from friends or family, because locales and standards can differ.
The following are examples of documents required in California. While your area may differ, you can see why it is so important to receive a complete list of required documents as quickly as possible. The best thing you can do then is assemble the documents as quickly as you can:
As you can see, while the time to closing can sound long when you first hear it, much takes place during the period. The good news is that there are many steps you can take to reduce the time. It’s important to be aware of the steps involved and to provide sufficient documentation. It is also very important to stay in touch with your lender and the seller during this period and be proactive about any issues that snag the progress to closing. Good luck, and enjoy your house!