You’ve finally made it. Documents are signed, cash is allocated, and agreements are ready to be finalized during the closing on your new home. It is logical to think that now that the hardest part is done, that there is nothing else to worry about, but the unfortunate truth is that there are still things that can go wrong just before, or even during a closing.
Issues with Financing
If you’re looking forward to your closing date, by now you should have already gone through the process of securing financing. This means working with your lender to find the best loan for your financial situation, as well as collecting a pre-approval letter from that lender. This letter does not guarantee a loan, but instead shows sellers that you have the financial buying power to secure an appropriate loan. To ensure that your loan is not denied following pre-approval, be sure to avoid accruing additional debt or opening additional lines of credit until your mortgage process is completed. If your credit score drops too much, or if your employment suddenly changes, your mortgage may be denied.
Issues with Home Inspection
It is generally recommended that home buyers perform a home inspection once they are under contract, and that the contract includes a home inspection contingency. Such a contingency will help ensure that if there are any serious problems identified, a buyer can either back out without financial loss, or negotiate for either the repairs themselves, or the costs of the repairs.
Recently, it has become more commonplace for buyers to purchase while foregoing an inspection, just to stay competitive in the current market. While this strategy can look great to a seller, remember that you’re buying a home you may be living in for a very long time, and you could be setting yourself up for thousands of dollars of repairs down the road. If you decide to forego such a contingency and then identify issues on a walk-through, you may have to give up your earnest money and cancel your closing altogether.
Issues with Appraisal
Did you know that even if you pre-qualify for a certain amount, you may not be able to get a loan for that amount on a specific home? Nowadays, it’s not unusual to see houses selling for far higher than they would have a couple years ago, but while some homes are highly desirable to buyers, banks may not agree on that perceived value.
Your bank will only give you a loan for the amount of money the house appraises for, so long as you are qualified for such a loan. That means that if you agree to pay a certain price and your loan comes out to less than you’ve committed to pay, you will be responsible for paying the remainder at closing. If you plan to overbid on a home to win that bidding war, be sure that you can pay cash for any amount over the appraised value of the home.
The Bottom Line
The most important thing to remember about purchasing a house is that the entire process takes diligence. Even when you believe all of all your questions have been answered, it never hurts to ensure that everything is exactly in place. With proper preparation and preventative measures, your closing day can be stress-free.