By Susana Jurado
Buying a house can be one of the most complicated journeys to go through, especially during these difficult times. Negotiation on a price may be a simple process, but once the paperwork is all signed and ready, when will it be officially yours?
Hard to say.
A specific time frame on how long it takes to close on a house is not set in stone. In fact, there have been reported cases of homes closing from at least a week to more than a few months. According to the Ellie Mae Origination Insight Report, the average amount of time it takes to close on a house ranges from 30 to 45 days.
The complex intricacies behind paying for a new home are readily apparent as many obstacles can obstruct the closing timeline. So what can be done to tackle this ongoing frustration? Let’s go to the root of the problem.
A purchase contract needs to be created between you and the seller once you agree upon a sensible price––ending with your signed agreement as a signal for moving forward with your purchase. Partnered with this contract, you (the buyer) must also submit a small deposit (earnest money) to keep your offer in an escrow account.
However, the sale is often on thin ice as both parties can freely back out at the last minute and escrow means nothing until the necessary paperwork is all submitted and processed accurately. This delicate position of escrow can easily influence the closing time frame and considerably slow it down, even impeding it altogether.
Additionally, this signed contract usually assumes a given date for the house’s official closing, providing the buyer time to conduct any necessary inspections on the new property. These detailed inspections will definitely add more time to your closing timeline because there may be repairs that the buyer might want the seller to finish before the purchase is made official.
The average time frame these inspections take usually lasts at minimum, over a week; however, there is the atypical possibility that the buyer may waive all rights to house assessments.
Problems surrounding electrical and structural systems, lingering water damage, roof issues, etc., can cause a buyer to back out of an offer or renegotiate a lower offer, producing a significant loss in time for closing on the home.
Pre-inspections are highly encouraged, especially before the contractual closing process begins. It gives the seller loads of time to repair any issues before the house is on the market. However, transparency is needed when making a pre-inspection report, often generating potential problems when showing new buyers the type of repairs on the house and even the seller’s need to pay out of pocket.
When buying a new home with a loan, appraisals are a requirement and highly recommended with any new home transaction. An appraisal is defined as a third party’s professional determination of a certain value for a property before it is officially sold. It is often used as a guideline for lenders to see if the loan is sufficient for the property and not overpriced––providing clarification on how much you should pay for your house instead of playing a guessing game that may lose you more than you need to.
The constant time delays an appraisal can trigger when closing on a house can be due to a determined value lower than the buyer’s offer. The buyer and the seller thus need to renegotiate the terms of the price, and if they cannot agree, they would most likely request a second appraisal. Nothing would officially move forward until they handle this issue effectively. Final solutions to this issue often occur after only a few hours but can also last up to a number of weeks.
Paying for a new home gets trickier when it comes down to the form of payment. Unless buyers pay cash upfront, a mortgage loan is a way to move forward with your purchase––extending the closing timeline significantly. A mortgage loan will officially be approved to a buyer once particular prerequisites are submitted to lenders, including documentation of your income, employment situation, assets, etc., and reviewed extensively by underwriters to see if you qualify for that amount of money and property.
Ellie Mae, a mortgage software company well-known for its loan applications processes, reported that the “average time to close a purchase loan is 46 days,” based on data found in June 2020.
Depending on how prepared you are with the documentation, a mortgage loan approval process can finish from a month to much longer. The slower your response time to meet the requirements like specific receipts, the more hiccups will arise when going through the closing process. Being as open and communicative as possible while being confidently decisive provides an easy environment for both the buyer and seller. Both parties’ effective commitment would smoothly move the process along.
If the mortgage loan application is filled out and pre-approved before a home is found, it can further shorten the closing time frame.
There may also be some setbacks when moving forward with the sale. Contingencies may include a contractual obligation, forcing the buyer to sell their current home before buying this new property. If the buyer is incapable of selling their existing home promptly, then the new home’s sale may experience some serious closing time impediments.
If that’s not enough, more requirements pile up as hazard insurance and homeowners insurance come into play––delaying the never-ending closing homeowner’s experience. In case of natural disasters such as fires, floods, storms and earthquakes or physically dangerous circumstances like robberies and vandalism, these types of insurance are a life net. They would protect you and your lender considerably from liability, especially if anything were to happen to the property. Again, the procedure to apply is very time-consuming––taking away precious time from closing.
One of the last things to focus on during the closing process is the title search and insurance meant to protect your property ownership by refuting anyone who tries to claim it as their own later on. The title search defines you as the valid owner no matter how long anybody else says the property belongs to them. It protects you and your lender from financial loss if there are indeed issues with your title. This extends your closing time by about a week, giving a title company time to finish your title search and insurance.
Issues with the seller’s title of the new home may arise with a clutter of judgments, liens and bankruptcies affecting the closing process’s settlement––taking more than a few months even. So, the seller is obligated to get that taken care of beforehand to save time in the closing process. A preliminary report on the title may be imperative on the seller’s behalf before putting any house on the market. They need to get all that cleared and out of the way to keep the closing time short and moving quickly.
A final walk-through of your new house is often encouraged to be thorough right before closing. Accepting the house is a big decision; it’s best not to be caught by surprise after officially closing.
Buyers must pay closing costs that must be paid beforehand, and the money must be in place. The buyer or the buyer’s mortgage company must pay the closing attorney everything owed before acknowledging the transition of ownership to the buyer as official.
Finally, once everything is finished and all requirements are met, add another hour or so as you sit with your real estate agent and the closing attorney to sign all the documentation with your closing disclosure and settlement statement. However, you are free to sign all of these documents beforehand to save time on closing on the property.
The COVID-19 pandemic was one crucial factor that contributed to significant closing real estate delays. Closing could no longer be in person. The interest rates were at record lows, bringing so much business for lenders, home inspectors and attorneys––there was not enough time to keep up, primarily as employment rates declined.
It is difficult to say how long it takes to close on a house because each circumstance is incredibly unique. But there seems to be a pattern of various factors that contribute to dragging it out for lengthy periods. Catching these issues early on and getting prepared will guide you in making the most important life-changing decision: owning your own home.
Now, it’s truly yours.
Susana Jurado is a 5th-year Communications major at UC Davis from Los Angeles. She is one of the Opinion Editors for the Davis Vanguard at UC Davis.
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