As a prospective homebuyer, you may be well acquainted with the pain of making it to closing day. Few things are more frustrating than finding your dream home only to have your loan application gummed up in underwriting because of a missing document. However, going in well-prepared for the endeavor of buying a home can help alleviate some of the anxiety that comes with closing on a home. Even a smooth closing process can take 50 days or longer. Here’s what you need to look out for as a homebuyer.
A financial advisor can help you with housing-related issues, including the closing.
How Long Does It Take to Close on a House?
The average time to close on your home will depend on the type of mortgage you’re taking out. The latest report from ICE Mortgage Technology shows that in September 2021, conventional mortgages are the fastest to close, with an average of 49 days. Federal Housing Administration (FHA) loans were a bit slower, averaging 52 days to close. VA loans averaged 56 days to close on a house.
While it may take well over a month for closing day to arrive, you should expect to spend an hour or two on closing day. Lack of preparation can extend this time, so it’s best to arrive with all the required documentation and payment for your closing costs.
On closing day, you’ll bring your driver’s license or another form of identification, a copy of your closing disclosure and a cashier’s check to satisfy the closing costs. Additionally, you’ll sign a number of documents:
The promissory note agreeing to pay back your mortgage
The mortgage note confirming the details of your mortgage
The escrow disclosure defining your property taxes and homeowners insurance
The deed of trust, which gives your lender the right to foreclose the home if you fail to pay your mortgage
The final step of closing is putting the home’s title in your name, which legally makes you the property owner.
How the Closing Process Works
When buying a home, you’ll take these steps to progress in the closing process:
Mortgage Application. Usually, applying for a mortgage takes one day and can take place with your mortgage preapproval. To ensure you aren’t slowed down by this step, fill out the application carefully. Mistakes on the application might cost you several days. Mandatory information for the application includes your income, address, Social Security number and the amount you want the lender to provide you for your mortgage.
Loan Disclosure. Your lender will send you the interest rate, duration, estimated monthly payments and closing costs for the mortgage. This step should take less than a week.
Request for Documents. Your lender will ask you for additional financial information. If you are proactive and communicative with your lender, this step should take less than a week.
Home Appraisal. A professional third party visits the home and assigns it a monetary value. The appraisal is crucial because it affects how much your lender will loan you for the mortgage. You’ll wait between one and two weeks for the appraisal.
Underwriting. In a process that lasts one to three days, underwriters review your financial documentation to verify that you are eligible for a mortgage loan. This stage weighs the house’s value against your income, assets, debt and credit history to determine your ability to afford a mortgage.
Conditional approval. If you get the green light from underwriting, you’ll get conditional approval. Typically, in the week or two that conditional approval lasts, your lender will ask you for additional documentation to confirm the decision from underwriting.
Cleared for Close. Once your lender clears you to close and provides the mortgage disclosure terms, you must wait three days before signing. This delay is required and allows you to review the loan terms and address any final concerns.
Closing day. Upon signing your closing disclosure and gathering the needed documentation outlined above, you’re ready to close and receive funding for your mortgage. Your county will officially record your mortgage as well.
What Could Delay the Closing?
Numerous external factors can slow down the closing process even if you have your ducks in a row. Beware of the following issues pushing back closing day.
Lenders Are Tied Up
Since the pandemic began, homebuyers have increasingly faced a hot real estate market. As a result, companies and professionals associated with the closing process are more likely to be backlogged with work. Your documentation might be error free, but your lender may need an extra week or two to review it.
Repairs are Needed or the Appraisal is Low
A low appraisal can throw a wrench in the process. Closing will remain at a standstill unless the seller reduces the price to match the appraisal, the homebuyer hires another appraiser that provides a more generous evaluation, or the homebuyer increases the down payment to fill the gap between the appraisal and asking price.
The home may also be in too poor of shape for your lender’s stipulations. In this case, the seller must perform needed repairs, or you’ll need to apply for a home renovation mortgage.
Problematic Home Inspection
The home inspection can uncover issues that can cause the buyer to hesitate. To keep the closing process going, the seller and buyer must agree on how to address the concerns from the home inspection. Solutions include the seller completing repairs on the home, lowering the price, or mitigating the closing costs for the buyer. In a competitive market, a seller might decide to take no action because they believe the house will sell anyway.
Challenges Insuring the Home
This issue can be regional, as natural disasters can make a home difficult to ensure. For example, according to some reports, Louisana’s hurricanes have caused insurance companies to fail in the state. You’ll need homeowners insurance to get a mortgage, and finding a lender could postpone closing day. To head off this problem, have the seller provide the home’s Comprehensive Loss Underwriting Exchange (CLUE) report.
In addition, ask the seller what homeowners insurance they have since you may be able to get a policy through their insurer more easily.
Property Title Disputes
Part of the closing process includes your lender conducting a title search. The title search may show liens or claims on the property that the title search company cannot swiftly deal with.
A Wavering Credit Report
Taking actions that affect your credit report – such as opening up other lines of credit or wildly spending on one of your credit cards – could render you ineligible for your loan. If your debt-to-income ratio (DTI) increases enough, your lender may raise your interest rate in response or stop working with you altogether.
An Alarming Final Walkthrough
With a final walkthrough that reveals new damage to the home or unfinished repairs that the seller had guaranteed, your closing date could be jeopardized while you try to address the problems.
Tips to Keeping Your Closing on Pace
Multiple parties control different aspects of closing, but you can always ensure you do your utmost to facilitate the process. For example, follow up with necessary documentation on the same day it was requested. Instead of hurrying through your disclosure paperwork, peruse it for errors. The lender and the seller have parts to play, but so do you. The following can help you drive the process forward.
Compile paperwork ahead of time. Regardless of what else your lender might need, they will always ask for copies of your two most recent bank statements, pay stubs and tax returns. Bringing these preemptively eliminates extra back-and-forth between you and the lender.
Keep your credit pristine. New loans and credit cards can wait until after you close. Additionally, if someone wants you to co-sign for their loan, that should only happen after closing.
Stay in your current job. Keeping your income steady will help your lender determine your ability to repay the mortgage. If you receive a fantastic offer from a prospective employer, communicate with your lender to ensure a career move won’t disrupt the closing process.
Extend your mortgage rate lock. Ask your lender to estimate how many days it will take to close. You can pay a higher fee to lock your interest rate for several days or a few weeks over their estimate. If your interest rate lock expires, it could cause trouble for closing.
Keep working with the same lender. Changing lenders will put you back to square one and you’ll need to supply all the needed documentation again. While a serious issue (such as surprise fees or lack of responsiveness) can be a valid reason to find a new lender, you should try to overcome minor issues and preserve your closing date.
The Bottom Line
The mortgage process can sometimes feel like an exciting, breakneck race to the finish line. Unfortunately, it can also feel like wading through mud. While there are no guarantees for a fast closing process, homebuyers can take an active, practical role by communicating early and often with all parties involved and anticipating their lender’s requests for documentation.
A financial advisor can help you prepare thoroughly for closing day. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you outline your house hunting plan, get started now.
Want to calculate your mortgage payment? Use SmartAsset’s free mortgage calculator to see what your monthly payment will look like based on your down payment, rate and total cost.
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