Issues such as title discrepancies, financing challenges and low home appraisals can all lead to delays when closing on a home. While these roadblocks can be frustrating, many setbacks can be avoided with careful preparation.
In this article, we’ll cover seven of the most common reasons for home closing delays and provide tips to help you avoid them.
1. Your Financing Falls Through
Failure to get mortgage approval is one of the most common reasons for a delayed real estate closing. Your financing can fall through if you lose your job or change jobs during the homebuying process. After your mortgage preapproval, your financing can also be at risk if you finance a big purchase like a car, apply for more credit or accrue additional debt.
“If your debt-to-income changes at all, it will delay the process,” says Rick Woods, a real estate agent with Keller Williams in Tampa, Florida. “Going through all the documents takes a long time, and that’s if they don’t ask for anything additional. Secure financing as early as possible, so if you run into any issues, it doesn’t impact your closing time.”
Avoid applying for new credit cards, address any outstanding debts and ensure your bill payments are made on time. Check your credit report for errors, and take steps to correct any issues that you see.
2. The Property Has Title Issues
For a smooth closing, a title company or real estate attorney must conduct a search to ensure the property’s title is clear. Title insurance will help safeguard you from legal challenges during a real estate transaction, such as ownership disputes, unresolved liens or delinquent taxes.
“Title insurance is the only thing the buyer can do to protect themselves if the search misses something when it’s time to close,” Woods says. Some situations, like issues with the deed or confusion over ownership, can even lead to a legal battle.
During the title search, it’s wise to order a survey to ensure full use of the property and no building restrictions. Ask the title company to order lien letters to find potential open or expired permits.
3. The Appraisal Comes in Low
A home appraisal determines whether the property’s value aligns with the sale price. If the appraisal comes in lower than the agreed-upon price, it doesn’t necessarily end the deal, but lenders will only finance up to the appraised value.
As a buyer, this means that you must either renegotiate the sale price or bring additional funds to closing to move forward. You may also choose to challenge the appraisal and request an appraisal review.
When there’s an appraisal gap such as this, an appraisal contingency in your purchase contract allows you to renegotiate with the seller or back out of the deal without losing your good faith deposit. “I see this happening more and more, so without the spare cash or a contingency in place, you’re in breach of contract if you try to back out,” says Woods. “Be prepared to pay the difference if this pops up.”
4. Inspection and Repair Issues
A home inspection can reveal serious problems and lead to a lengthy negotiation. “Buyers should not skip the inspection, even when it’s tempting,” says Julie Jones, an agent with Smith & Associates Real Estate in St. Petersburg, Florida. “Last-minute issues are found all the time, and so I always recommend one before the final walkthrough. And don’t be afraid to ask for another look if there’s a big storm or there were areas that were rushed.”
To avoid delays, schedule your inspection as soon as you go under contract. Consider focusing on major repairs or safety issues rather than small imperfections to keep the deal moving forward. If a home inspection uncovers issues, an inspection contingency will allow you to negotiate the sale price or repairs with the seller. An inspection clause will also allow you to walk away from the deal and keep your earnest money deposit if you and the seller cannot reach an agreement.
5. A Home Sale Contingency Causes Delays
A home sale contingency is a clause in the contract that says you will only move forward with your purchase after selling your current home. When this contingency is included, the buyer normally has 30 to 60 days to sell their existing property.
For the buyer and seller, a home sale contingency is a significant hurdle before closing day. To help mitigate risk, a seller may want to include a kick-out clause in response to a home sale contingency. This allows them to continue marketing their home and accept backup offers when a home sale contingency is in place.
6. The Seller Fails to Provide HOA Documents
If you’re purchasing a home within a homeowners association or condo, you have the right to review all of the HOA documents (also known as the “resale package”) prior to closing. Reviewing these documents before you take ownership is crucial, as they outline the rules, regulations and financial standing of the community where you plan to buy. If you don’t receive the HOA docs before closing, it can delay the sale or allow you to back out of the deal.
In some cases, the HOA documents could reveal additional homeownership costs. For example, the resale documents will note known and scheduled increases to HOA fees. You’ll also learn if owners will be required to pay a special assessment, which is an additional cost that’s charged to cover expenses that exceed what the association holds in its reserve funds.
HOA documents can take time to obtain, and you can typically expect to receive them in five to 15 days. Your agent will work with the seller’s agent to obtain a copy of the resale package before closing.
7. The Buyer or Seller Is in Breach of Contract
A breach of contract means that the seller or buyer has failed to fulfill their obligations, which can cause a delayed closing and even a legal dispute.
“If it’s not in the contract, it doesn’t matter,” Jones says. “Your contract needs to be detailed and specific, or that will draw out the deal.”
Financial Risks of a Delayed Closing
There can be a financial impact incurred due to the delay of a home closing, or if the deal falls through. Some of the most serious financial risks include:
- Loss of earnest money deposit: The seller can keep your earnest money deposit if you breach contract, miss contract deadlines or back out for a reason that isn’t allowed by a contingency in your purchase agreement.
- Per diem closing costs: After the agreed-upon closing date has passed, the seller can extend the deadline but charge you a daily rate to recoup expenses for mortgage, tax and insurance fees.
- Mortgage interest rate changes: When your loan is approved, your interest rate typically stays locked for 30 to 60 days. If your closing is delayed, you might have a higher interest rate or have to pay to extend your rate lock.
What Happens If a Home Closing Is Delayed?
A delayed closing can disrupt moving plans, result in unforeseen costs and fees, and sometimes cause legal ramifications. If your closing is delayed, you may also be at greater risk of the deal falling through.
Understanding the potential roadblocks (and how to avoid them) can reduce the likelihood of a setback and keep your home purchase on track. Stay proactive and work closely with your lender, agent and title company to ensure a smooth closing process.
Amy David is an experienced journalist and corporate communications writer. She spent over a decade as a journalist and editor of various publications, including Richmond BizSense, Henrico Citizen and RVA Magazine. As web editor for RVA Magazine, Amy led a team of writers and oversaw two digital magazines and a quarterly print magazine. She led the food and beverage beat, launching a successful food/beverage column. In addition, she’s reported on real estate, politics, social issues and music.
Amy earned a Bachelor of Science in journalism from Radford University. She lives in Richmond, Virginia’s Maymont neighborhood.
