What is a 442?
In Olympia WA, we have several new subdivisions where buyers can pick out their lot, choose a floor plan, and have that home built. We call this a pre-sale home.
With pre-sales, it is very common for the lender to have the appraisal done when the home is about 80%+ complete. When the home is 100% complete, the appraiser will re-inspect the property and complete what is called the 442 for the lender confirming that the home is built and any previously called out unfinished construction issues have been completed. What is most common is the home is not completed until a day or two prior to closing.
How can the 442 delay closing?
Many lenders have the 442 as a condition of funding, meaning if they get the 442 on the day of closing, they can still close and record that day because it is only a condition of funding the loan. All the other loan paperwork has been reviewed, underwritten and signed by the buyer and seller.
The problem with some lenders is they make this a condition of underwriting. If the 442 is a condition of underwriting, that means the loan package will not be submitted for final review by the lender’s underwriters until they have the 442. This action automatically delays closing on the property. This also means that the lender will not prepare the documents to be sent to escrow. In Olympia WA, buyers sign their closing documents a day or two prior to the close date. But again, most new construction isn’t completed until a day or two prior to the close date.
Scenario of how the 442 delayed closing for my clients
With my presale buyers, their home was completed on October 30th with a close date of October 31st. Because their national online lender had the 442 as a condition of underwriting, this caused my buyers not to close on time. We were waiting for the 442 to go through the underwriting process, then the paperwork had to be prepared, shipped to the escrow company, reviewed again, and then my clients could sign. They were able to move in right before Thanksgiving, 3 weeks past their close date! If this had been a condition of funding, we would have been able to close on time, or possibly delayed a few days instead of a few weeks.
How to avoid the 442 delay.
1) Ask the lender if the 442 is a condition of funding or a condition of underwriting. For presale buyers, if you know this answer, then the close date and/or the purchase and sale agreement can be modified.
It goes without being said that a delayed closing is a hardship on both the buyer and seller, but with presales, it is common for a penalty to be enforced if the buyer fails to close on time. Many presale purchase and sale agreements state if the buyer does not close on time, the builder/seller will charge the buyer $x per day. I have seen contracts where this dollar amount is $100 a day past the close date.
2) Use a local lender. Use local lenders who understand the loan process for Olympia WA. Real estate transactions are handled different in each state, and in fact, there are differences in each Washington State county.
Note: Re-appraisal 442s are not just for presales, but for existing homes as well where repairs were done, for example. With existing homes, usually the repairs were done well before the close date, allowing the time needed for an underwriting review.