5 Ways to Avoid Home-Buying Closing Delays

Contract timelines are always tight in the current San Francisco market. That means that buyers are typically removing appraisal and loan approval contingencies within days of having offers accepted. If you’re not prepared to jump on the fast track to completing your purchase, drama can ensue.

Here are five ways to avoid major closing delays, courtesy of my colleagues at Guarantee Mortgage who presented at our Zephyr sales meeting this week:
1. Be ready to pay for your appraisal. In order to meet a fast appraisal approval turnaround, the lender has to order the appraisal immediately. You should be sufficiently committed to the property to pay for your appraisal within the first day of offer acceptance.

2. Don’t switch your bank accounts around. The lender will typically require re-verification of all money you wire into escrow for your cash balance. If that money is suddenly coming from an account previously undisclosed during your preapproval period, the lender will demand that you provide documentation for that account. The statements will then have to be resubmitted and reviewed by underwriting while time is ticking.

3. Make sure your cash balance is liquid and ready to be transferred to the escrow account. The lender will want to see that the balance of your down payment and closing costs have been wired into the escrow account prior to funding the loan. Best strategy? Wire in that cash balance a few days prior to close of escrow to ensure that your loan funds on time.

4. Watch the AMEX charges. Lenders are picky about American Express credit card balances. If you have a high balance on your AMEX, a lender may want to see proof that you have the money to pay off that balance in full. This proof of funds should be separate from the funds you’ll need to pay your cash balance and any reserves required.

5. Lock in your homeowners insurance early. You should select your home insurance policy no later than a week prior to signing your loan documents. The latter are usually issued about a week ahead of the closing date.

Lending World Lurches On

We had quite a spirited discussion in the Pacific Union Market Watch meeting this morning about loans, escrows, and new lender regulations. In a nutshell, it’s key that buyers and sellers set their expectations for delayed or even cancelled escrows.

Though loans funding smoothly in 30 days or less used to be the norm, there’s a landmine of issues to navigate in the current market. And that’s slowing everything down. There’s the lender who funded a loan and then reversed the wire to the title company on the day escrow was scheduled to close, subsequently deciding not to fund. Banks are requiring multiple appraisal reviews, which are sometimes resulting in denied loans. Loans are being rejected due to a particular property characteristic (i.e., an unwarranted unit). A second loan review is often being ordered shortly before closing, delaying the close of escrow. Even buyers with as much as 50% down are enduring the scrutiny.

And to add to the fun, Regulation Z—which implements the federal Truth in Lending Act—takes effect today. This regulation will impose timing restrictions and disclosure requirements that may affect the speed with which buyers can secure their loans at any financial institution.

What it all boils down to is that buyers and sellers need to be prepared for serious delays in closing transactions. My advice these days to clients is not to count on a sale closing on time. In other words, if you’re in contract on a purchase that is dependent on your home first selling, you might want to consider renting in the interim and pursuing a purchase after you have your sale proceeds in hand.

And buyers moving from a rental to a new home may want to consider delaying giving notice to their landlord until, well, their purchase sale closes. That might mean paying an extra month’s worth of rent, but the alternative could be joining the ranks of the homeless if your loan doesn’t close until two weeks after the initial close of escrow.