Jul 07, 2010

Closing of Home Sale Delayed by Lender: Now What?

Once upon a time, a buyer and seller could set a closing date and expect that, barring a few hours' panic about some little item, that would be the date upon which the home purchase would be completed and ownership change hands.

Those days are, for many home buyers and sellers, gone. The main problem seems to be that the lenders have gotten so nervous that, even after preapproving a buyer and demanding scads of paperwork -- bank statements, pay stubs, gift letters, bank statements from people giving you gifts, explanations from employers about why your income has changed over the past year, and so forth -- they've developed a tendency to come up with last minute requests for yet more paperwork.

Or, in some cases, lenders reportedly want to wait for pending home sales to close, in order to make sure they've got the absolute latest figures on comparable home prices. (How's that going to work if all the lenders do the same thing?)

In a similar situation, the buyer's mortgage broker may still actually be shopping the buyer's loan around to different lenders, each of which is seeing the buyer's paperwork for the first time, and coming up with its own requirements.
 
One real estate agent I spoke with recently said he'd been involved with a home sale in which the lender's demands delayed the closing by 17 days! What can you, as a home buyer or seller, do to avoid such messes?

If you're the buyer, I recommend getting everything together for your loan paperwork as soon as possible, then checking with your broker or lender regularly to follow up. Ask lots of questions, like "What's the next step for my application," "When should I expect to hear confirmation that it's going as planned," "What are all the possible ways to reach you," and "Do you have any upcoming vacation plans?" Don't take vague reassurances that the loan will close on time at face value.

If you're the seller, don't accept a purchase offer until you've checked out the buyer's finances and ascertained that the loan upon which your sale is contingent is realistic (at an appropriate interest rate, and hopefully based on a down payment of 20% or more).

Once you're in contract, ask your agent to keep in regular touch with the buyer's agent about how the loan approvals are going -- and be prepared for the possibility that you'll be paying for your home's mortgage, utilities, and so forth, longer than you expected. If there is a delay, don't rush to cancel the sale -- instead, consider charging the buyer a daily fee in order to keep the contract in force -- your purchase contract may even provide for this. You might even want to start renting the place to the buyers, if they're desperate for a place to live -- better that they pay you rent than pay hotel bills. (Sign a separate rental agreement for this, too.)

No matter which side of the table you're on,  remember that patience and persistence is key. Blaming the other party may not be appropriate. Ten years from now, those few days' difference won't seem like so much.