When in the market to buy a home, buyers should be aware that issues may arise, and plan for closing delays. A recent daily news article through Realtor.org reported that 32 percent of all real estate transactions encounter some type of delay in their closing. This survey of more than 2,600 real estate professionals was conducted last month by the National Association of REALTORS®. The survey asked real estate professionals about their sales and purchases from the previous three months (October through December of 2015).
New TILA/RESPA Integrated Disclosure (TRID) rules were made effective October 3, 2015. This is an entirely new process for lenders and borrowers to secure loans, and includes new forms called the Closing Disclosure and Loan Estimate, that replace the HUD-1 and Good Faith Estimate (GFE). These new rules and forms are supposed to make it easier for borrowers to compare quotes from different lenders, and to streamline the process.
However, a recent survey by Ellie Mae shows that it took an average of 49 days for a mortgage loan to close in December of 2015, compared to 42 days to close a loan in December of 2014, prior to the changes. This certainly could be another reason for a delay in closing loans, as the new TRID rules started impacting closings in November of 2015, but it was not one of the top three in the NAR survey.
There were three main causes for the delays in closings:
1. The survey reported that out of the agents who experienced delays, 46 percent of those delays were caused by buyer financing issues.
2. Appraisal issues, where the appraisal differed from the agreed-upon sales price, accounted for 21 percent of the delays.
3. Home inspection issues were the third cause for closing delays, and made up 14 percent of the delays in closing a transaction.
The good news is that only about 6 percent of all transactions in the survey fell apart, meaning 94 percent eventually closed. Financing, and home inspection issues were the primary reasons the deals did not close, so most of the appraisal issues were resolved.
The main financing delays were cause by changes in the borrowers credit score from the time the loan was approved, to the time the loan was scheduled to close. Lenders run a final credit report just before closing in order to verify that there have been no changes in the borrowers credit score from the time their loan was approved. Often times, borrowers that are in the process of buying a home will purchase new furniture, appliances, or even a new car at the same time. This can seriously impact their credit score, and result in them no longer qualifying for the loan.
"It is advisable for anyone in the process of buying a home not to take on any additional credit until the loan has funded, and the home purchase is complete. Do not apply for more credit cards, and do not make additional purchases on credit, or that require financing."
Another financing issue that tends to delay closings is when a borrower fails to disclose all ongoing payment obligations, such as child support. This can affect the debt-to-income ratio, and also lead to the borrower no longer qualifying for financing.
"It is advisable for any borrower to be honest and upfront with the lender regarding all financial obligations during the application process. Anything that is not disclosed will certainly be discovered by the underwriter during the approval process."
Financing issues, appraisal issues, and home inspection issues, as well as the new TRID rules, are all reasons that can cause delays and even the denial of a home loan. Borrowers should not apply for new lines of credit, or finance anything during the purchase of a home, and consider allowing 45-60 days for a loan to close in order to avoid problems. Anyone looking to buy a home requiring financing should plan for potential closing delays.
Comments (99)Subscribe to CommentsComment