You may wonder how long it takes to close escrow. Buying a new home can be an exciting experience, but it can take longer than you expect. Once your offer has been accepted by the seller, the process has only just begun. One of the very first steps is to hire a real estate agent. Your Realtor will guide you through the real estate transaction.
The amount of closing time you will need depends on many factors. Things can go wrong in the process, but it may only delay your close of escrow time slightly.
Let’s look at the things that can delay your closing time.
Prior to even scheduling an appointment to look at a home is to meet with your mortgage lender. The application process can move along quickly, but it largely depends on how quickly you provide the required documents. Your lender will have you submit all your financial information and ask you to complete a mortgage application. This needs to be completed in a timely manner.
In this very competitive market with multiple offers going over the asking price, having your financing in place is crucial. You want to be prepared to get your offer accepted in a bidding war. Ideally, you are approved before you step into a home to look at. It is common to see shortened contingency periods, and working with a seasoned lender is ideal.
The lender reviews your debt to income ratio to determine how much you can afford for your mortgage loan. The lender will determine how much you can afford for your monthly payments. The lender will also review your credit report and ensure that it is in good shape for a lender to take a risk. The lender will lock you in at a rate so that in the event the mortgage rate goes up, you will be locked in at the lower rate. Once the lender has all the required documents, they can provide you with a pre-approval letter.
There may be reasons why a buyer did not get approved for a mortgage. Reasons may include a poor credit score, debt to income ratio, and more. The lender will review the purchase price of the home and submit your loan to underwriting. The underwriter may have prior to doc and prior to funding conditions. The lender will work with the underwriter in order to close escrow.
How Long Does it Take to Close Escrow?
Many things affect how long it takes to close escrow, but this time can vary quite a bit. The most recent information given by Fannie Mae gives an average time of 52 days. However, we are seeing far shorter closing times during this competitive market.
Despite this average, the amount of time it takes for your home to close escrow could be very different. Conditions in the real estate market play a role, with more delays when there are more demands on the professionals involved when you close escrow.
Though on the closing day you may only spend an hour signing paperwork, many things need to happen before you get to that point.
What Slows Down Closing Time?
The process of closing begins after the buyer’s offer has been accepted by the seller. The property will close escrow once the loan has been funded and it has been recorded by the county.
With the price agreed, there can be a purchase contract between the buyer and seller. This will give more details about the different stages of closing, as well as contingency requirements and how much earnest money deposit is required.
The purchase agreement will give a closing date, though this can change. Things don’t always go to plan, and this date can be pushed back.
Even if things go well without any problems along the way, you can expect to wait more than a month to close escrow.
Problems with Financing
The most common cause of delay in the closing process is buyer financing issues. While the buyer might believe they have secured the home loan they need from their lender, the situation could have changed.
If the buyer’s situation has changed since they received preapproval, things could go badly. Perhaps a large purchase was made on a credit card, changing their debt to income ratio. The buyer could also fail to provide the lender the correct documentation to prove they qualify for the loan.
Other financing problems can occur if the borrower’s interest rate increases. If this happens when the buyer is only just qualifying for the mortgage they want, there can be problems.
Delays in financing can happen due to the borrower not providing their documentation quickly. If the buyer delays their application, this will slow down the closing process.
Depending on the type of loan you are going to get whether you are obtaining conventional loans, FHA, or VA loans, it can impact the length of time for you to obtain the loan.
The Appraisal Evaluation
If you are getting a loan on your home purchase, then the lender will require a home appraisal. The lender needs to see that the home is worth the amount of money they are going to lend. An appraiser is used to judge the value of the home. There are many factors that an appraiser will consider at an appraisal. The appraiser will measure the home and consider the condition of the property as well.
But if they assess the value to be less than the amount the buyer has offered, they won’t lend the money necessary to complete the purchase. Then the buyer has options. They can bring the additional funds to cover the shortfall or go back to the seller to renegotiate the purchase price. If the buyer can make up the difference, the purchase can continue, but this is generally not recommended.
Home Inspection Findings
If the home inspector or finds serious problems with the property, there could be delays. Perhaps they find structural damage or plumbing concerns, and if they are serious, the buyer will want them resolved. It is strongly recommended to get a home inspection on a property. Otherwise, you have no idea of what you are purchasing.
If there are substantial repairs, you can negotiate with the seller’s home repairs. The seller is under no obligation to complete the repairs, but in general, most sellers will either leave money in escrow for the repairs or have the repairs fixed.
Ensuring the Property Has Clear Title
One of the contingencies with a home purchase is ensuring that the home has a clear title. It is imperative to work with a reputable title company. The title company will perform a title search and will provide a preliminary title report that the home buyer should closely review. When reviewing the title on the home finds that there are property liens or judgments, it will need to be dealt with by the seller.
This will prevent the buyer’s purchase from continuing until it has been cleared to close escrow. Title companies can work with the seller to help to clear up the title during your contingency period. You will receive title insurance ensuring that verifies that the home has a clear title.
Final Walkthrough or Verification of Property Condition
The final step of the escrow process is the verification of property condition or walkthrough. This is not considered to be a contractual action to close escrow. The final walkthrough is basically ensuring the home is in the same condition as when you made the purchase offer. Even if you have got past all the previous hurdles during the escrow, there can still be issues at the last moment.
The final walkthrough is used to ensure everything is as it should be and the home is in the same condition as when the buyer made their offer. It is a good idea to do the walkthrough and not waive it, however, some home buyers do waive it.
If something is found to be wrong with a home at this stage, it might still be possible for the closing to continue as planned. Money can be held back in an escrow account until the seller has corrected the problems.5 Important Reasons Why Your Home Did Not Close EscrowClick To Tweet
Escrow Company and Closing Costs
There are closing costs when you are purchasing a home. Your escrow company can provide a net sheet so that you can review what the costs will be to purchase a home. Be sure to ask your agent to have the escrow agent prepare this net sheet for you. There are lender fees which are costs, and generally, these cannot be wrapped into the loan. Other fees that you will see are property taxes that are generally held back and there may be supplemental property tax.
Escrow will also make sure that you have homeowners insurance and that information needs to be provided to the escrow officer prior to closing.
Be sure to ask your escrow officer about any fees that you see and do not understand. A home buyer needs to be prepared with the down payment to purchase the home along with enough funds for the closing costs.
When you close escrow on your new home, it is a very exciting time. It is best to understand what can happen when buying a home and how long it takes to close escrow. Being prepared can help you to avoid delays with closing escrow on your new home.
About the Author
The above article “Close Escrow | 5 Important Reasons Why Your Escrow Can Be Delayed” was written by Sharon Paxson, one of the best Newport Beach CA Real Estate agents. With experience since 2005, representing buyers, sellers, and landlords, we welcome the opportunity to share our expertise with you and guide you through your real estate transaction.