Mortgage Closing Problems: Solutions For A Smooth Transaction

Buying a home can be a stressful process, and there are many potential issues that can arise when closing a mortgage. From loans falling through to surprises at the final walkthrough, both buyers and sellers should be aware of the problems that may occur on closing day. A pre-approved loan is often required before putting in an offer on a home, but even with pre-approval, there is no guarantee that the loan will be approved. A low credit score, a change in employment, or a low home appraisal can all cause a mortgage to fall through. To avoid these issues, it's important to maintain a good credit score, refrain from making any major purchases or changes to your finances, and be prepared for the closing process by gathering the necessary documents and conducting thorough inspections.

How do I fix a problem with mortgage closing?

Avoid making major purchases or applying for credit before closing on a mortgage

When you are in the process of getting a mortgage, it is best to avoid making any major purchases or applying for credit. This is because lenders reassess your credit score, income, and debts before closing on a loan. Any changes to your credit score and history can impact the interest rate and loan amount you receive. A low credit score can even make it impossible to finalize the loan.

Lenders are looking to ensure that nothing has changed since you initially applied for the mortgage. While you are waiting to close on a home, it is best to only use your credit card for small purchases and pay off the balance in full. Making a large purchase on your credit card during the home-closing process can jeopardize your mortgage approval. This is because amassing debt while you are waiting to close on a home can impact your debt-to-income ratio, which could impact how much you are allowed to borrow.

You should also avoid applying for other loans, opening a new line of credit, or co-signing on a loan. All these activities will show up on your credit report, and your lender will see the increase in debt and required monthly payments. They could determine that your ability to make payments on your original mortgage loan request has changed.

It is also not a good idea to close any existing credit cards, as this will affect your credit score. Lenders are looking for consistency in your employment history, so it is best to avoid changing jobs until after you close on your loan.

Get a pre-approved loan before putting in an offer on a home

Getting a pre-approved loan before putting in an offer on a home is a crucial step in the home-buying process. It indicates your financial health and responsibility and increases the likelihood that your offer will be accepted by the seller. Here are some key reasons why you should get pre-approved for a loan before making an offer:

Demonstrates Financial Health and Responsibility

A pre-approved loan indicates to the seller that you are financially stable and responsible. It shows that you have undergone a thorough financial assessment by a lender, who has determined that you are capable of securing a mortgage and making the necessary payments. This can give the seller confidence in your ability to follow through with the purchase.

Increases the Chances of Offer Acceptance

In a competitive housing market, having a pre-approved loan can set you apart from other potential buyers. Sellers often require a pre-approval letter before accepting an offer, as it demonstrates that you are a serious and qualified buyer. Without pre-approval, your offer may not be considered, especially if other buyers have already obtained it.

Provides a More Accurate Budget

The pre-approval process helps you understand your financial limits and how much you can realistically borrow. By assessing your income, assets, debts, and credit record, lenders can provide a specific estimate of your borrowing capacity. This allows you to search for homes within your budget and make informed decisions about your spending limits.

Streamlines the Mortgage Process

Obtaining a pre-approved loan early on can help streamline the mortgage process once you've found a home you want to purchase. Since much of the financial due diligence has already been done, you can move forward with confidence and focus on finding the right property. It also demonstrates to real estate agents that you are a serious buyer, which may result in more dedicated assistance during your home search.

Avoids Last-Minute Surprises

The pre-approval process can help identify potential issues or discrepancies in your financial profile. Lenders will review your credit score, employment history, and other financial details, allowing you to address any concerns before submitting a formal mortgage application. This reduces the risk of unexpected problems or delays during the final stages of the home-buying process.

In conclusion, getting a pre-approved loan before putting in an offer on a home is a crucial step that demonstrates your financial readiness and increases your chances of a successful home purchase. It provides you with a realistic budget, streamlines the mortgage process, and helps avoid last-minute surprises. By obtaining pre-approval, you can approach the home-buying process with confidence and a stronger negotiating position.

Understand the difference between pre-approval and approval

When buying a new home, it is important to understand the difference between pre-approval and approval. Both are optional steps in the loan approval process, but they serve different purposes. Pre-qualification is a preliminary step to determine the size of the mortgage you could get. It is based on the data you submit, such as your income, assets, credit, and debt, and is used to provide a preliminary estimate of the mortgage size you could qualify for. Pre-qualification can be done online, in person, or over the phone, and you may get results within an hour. It is a less involved step with fewer verification steps, and it does not guarantee loan approval.

On the other hand, pre-approval is a more specific estimate of what you could borrow from a lender and requires documentation such as W-2s, recent pay stubs, bank statements, and tax returns. The lender will then use these documents to determine exactly how much you can borrow. Pre-approval usually takes more time, and you should receive your pre-approval letter within 10 business days after providing all the requested information. It signals to the seller that you are a serious buyer, but it is not a guarantee of the final loan amount.

Once you have pre-approval, you can lock in your rate and complete your loan application. Before the closing day, the lender will prepare a closing disclosure, which outlines the buyer's loan terms and other closing costs. The buyer will also do a walkthrough of the home to ensure it is in good condition and that any requested changes or repairs have been made. To avoid issues on closing day, buyers should avoid making any major changes to their finances, as this could impact their credit score and chances of loan approval.

Conduct a thorough home inspection to identify any issues

Conducting a thorough home inspection is a critical step in the home-buying process. While a home appraisal assesses a property's value, a home inspection evaluates its condition and identifies potential issues. This allows buyers to make an informed decision and provides an opportunity to negotiate with the seller.

A typical home inspection takes 2-4 hours, depending on the property's size and age. It involves a certified inspector conducting a non-invasive, visual examination of the property's physical structure and systems. They will assess both the interior and exterior, including the foundation, roof, plumbing, electrical systems, and more. A good inspector will also walk you through their findings, explaining major and minor issues, and may recommend routine maintenance.

Before the inspection, it is beneficial to do a walk-through to identify any initial red flags. You should also ensure your home is in good condition, fixing any quick defects like a slipped shingle or cracked window. Additionally, get your questions answered beforehand to understand the process and costs involved.

After the inspection, the inspector will provide a detailed written report summarizing their findings. This report will outline the property's major features and any issues discovered. As a buyer, you can use this report as a bargaining chip when negotiating with the seller. You may request repairs, a reduction in the purchase price, or even back out of the sale if significant problems are identified and cannot be resolved.

To choose a reputable inspector, ask for recommendations from your real estate agent, friends, or family. Look for inspectors with a reputation for honesty and thoroughness, and check for reviews, credentials, and references from prior customers. It is essential to select an independent inspector who is accountable to you and provides an unbiased assessment.

Be aware of potential delays, such as appraisal issues or repairs

When buying a home, it's important to be aware of potential delays that can impact the closing process. One common issue is appraisal-related problems. A home appraisal determines the fair market value of a property, taking into account factors like its condition, square footage, location, and recent upgrades. While appraisals are crucial for securing financing, they can also cause delays or even halt the loan process if the appraised value is lower than expected. In such cases, buyers might need to increase their down payment or renegotiate the price with the seller.

Additionally, appraisal reports may identify necessary repairs, which can further delay closing. Lenders typically require that significant repairs be made before approving a loan. For instance, structural issues like cracks in the foundation can significantly decrease a home's value and require costly repairs or even foundation replacement. Government-backed loans, such as FHA loans, have stricter repair requirements, and properties must meet certain minimum standards to qualify for financing. Roof repairs are also commonly flagged, as lenders may request a certification from a roof inspector to estimate the remaining life of the roof.

Another potential delay is the discovery of termite problems during a termite inspection. While not all lenders require termite inspections, it is in the buyer's best interest to conduct one. If evidence of an infestation is found, the affected areas must be treated before the sale can be finalised. If the issues are severe or the seller refuses to pay for the necessary repairs, buyers have the option to walk away, provided their purchase agreement includes the appropriate contingencies.

To mitigate these potential delays, buyers should maintain open communication with their mortgage banker and real estate agent. Being proactive and addressing any concerns promptly can help prevent last-minute surprises and ensure a smoother closing process.

Frequently asked questions