What Can Go Wrong Doesnt Necessarily Need To
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Having your home purchase offer accepted is like getting that runner’s high during a marathon. But hold the champagnethe property isn’t yours just yet. After your purchase offer is accepted and before you get the keyscommonly referred to as escrowthere are many hurdles to overcome. If you stumble on any of them, the purchase may fall through and put you back at the starting line.
Just like an athlete who trains for a competition, you can train yourself for the daunting final steps in purchasing a home. Escrow procedures and rules vary by state, but here are 10 of the most common problems encountered during this period and what, if anything, can be done to prevent or mitigate them.
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Avoid Closing On Friday Or Before A Holiday
In theory, closing on a Friday or just before a three-day holiday weekend seems like a great idea. More time for packing, moving and home repairs, right?
Resist this temptation!
The last thing you want is for the attorneys, lenders and other professionals working on the transaction to rush through the process. Under such circumstances, costly mistakes are more likely to occur.
For that reason, some experts recommend choosing a date in the middle of the week so the participants wont feel pressured to dash through all the paperwork.
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What Youll Need To Do The First Month After Closing
First things first: Make sure to stash all your closing documents in a secure place.
If youre a new homebuyer, how about a housewarming? When youre done celebrating, your next step should be to change the address on your drivers license. You may also want to apply for a homeowners property tax exemption . Eligible homeowners who apply may save on property tax, so check with your city or county to learn how to claim the exemption.
Fun fact: after closing, youll have a brief reprieve from monthly mortgage payments. Remember those prepaid amounts on your closing disclosure? A portion of these covers the interest that will accrue between the date you closed on the loan and the start of the first full month of your new mortgage. This means when your regular mortgage payments kick in, youll only need to pay the estimated total monthly payment that was quoted on the closing disclosure .
Your first mortgage payment will be due on the first day of the first full month after you close. That means if you close on April 15, your first mortgage payment is due on June 1. If you close earlier in the month, youll have an even longer break before your monthly payments start. Youll receive a bill when your first payment is due.
Single Close Loans Vs Multiple Loans
The traditional construction loan process produces a lot of worry for borrowers. Because there are at least two different loans one before construction begins and one after it ends there is always the possibility that circumstances change and the second loan wont close as expected.
Sometimes, new construction even requires a third take-out loan to prove you can pay for the construction project. That means more fees, more paperwork, and further risk of complications.
Over the years, this arcane process has left thousands of people struggling to put together new financing or negotiating a loan workout at a time when they should be enjoying the home theyve always wanted. The one-time close construction loan concept is designed to avoid all that.
When Is The Best Time To Close On A House
It helps to have some extra time after closing to replenish your funds before youre scheduled to make your first mortgage payment. You can also cut costs by being strategic about when you close on your home.
In general, the best time to close on a house is near the end of the month. Heres why:
- Youll pay less in prepaid interest, because there are fewer days left for interest to accrue between your closing date and the last day of the month.
- Youll save on your overall closing costs because you wont owe as much prepaid interest, which means theres a bit less cash you need to bring to the closing table.
Lets revisit our example above to illustrate how closing near the end of the month can save on interest fees. Remember, were using a 30-year, $250,000 loan with a 3.75% interest rate.
Its important to note that the daily interest cost is typically calculated using 30 days in a month, even when there are more or less days in a given month.
What Is The Distinction Between A Mortgage Offer And A Mortgage In Principle
You can request a mortgage in principle before finding your new home and submitting for a formal mortgage offer. This can be authorized considerably more quickly and offers you an estimate of how much the lender would be willing to let you borrow based on your financial status. It is usually good for 30 to 90 days. It also demonstrates to estate brokers and sellers that you are serious about purchasing.
A mortgage in principle is the amount of money that a lender is willing to lend you based purely on your financial situation in order to assist you to identify properties in your price range. However, keep in mind that an in principle mortgage offer is not a guarantee that you will be awarded a mortgage at that amount. Only once you have received your formal mortgage offer will you know that the mortgage arrangement is finalized.
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How Long Does A Mortgage Offer Last: Understanding Mortgage Offers
When you receive a mortgage offer, you may feel compelled to rejoice. However, there is still work to be done in the home-buying process.So, why is there an expiration date on your mortgage offer? Your offer is essentially a snapshot of your present circumstances based on your household income, credit history, interest rates, and the state of the housing market at the time of your application. These variables can change, which is why any mortgage offer has an expiration date. Youll undoubtedly have questions. How long will a mortgage offer be valid? Is it different between lenders? How long does the mortgage process take, and what is the average time to complete it after you receive your offer? Also is mortgage offer same as mortgage in principle
Keep Your Lender In Mind
Unless youre paying cash for the home, choose a closing date thats convenient for you, the seller and your mortgage lender.
Most people schedule the closing date for 30-to-45 days after the offer has been accepted and they do this for good reason.
Mortgage lending is a document- and labor-intensive process that requires the various players to coordinate many different steps. Under the best of circumstances, its a time-consuming effort.
So include plenty of wiggle room in case the unexpected happens a request for additional documentation or the last-minute discovery of a defect in the home.
If you dont allow enough time, the closing date might arrive before your financing is approved. If that happens, the seller might be able to cancel the deal in favor of a more attractive offer. Although most sellers will agree to a new date, why take the risk?
On the other hand, its important that the closing occur before the lenders loan commitment expires so you can enjoy the promised interest rate. If the date occurs too late, you might have to negotiate a new rate or even the entire loan package.
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How Much Are Closing Costs And Who Pays Them
Closing costs range between 1 percent to 7 percent of the sale price of the home, split between both parties. Home sellers usually pay between 1 percent to 3 percent of the final sale price, according to Realtor.com.
For more in-depth information, read our comprehensive post titled How much are closing costs. In this article, you will learn
- what closing costs are
- what types of fees they include
- what fees typically home sellers pay
- what fees home buyers pay
- how you can calculate closing costs.
Best Closing Date For Buyer: Middle Of Week
Many owners want to schedule a closing right before a holiday so they can use the down time to move, Walsh says. But a better choice is to schedule the closing within a few days of the holiday, not the last business day before, he says.
“I wouldn’t schedule the Wednesday before Thanksgiving. If you don’t end up closing on that day, you’re not going to close until the following week,” Walsh says.
The same rule applies for Friday deals. “You get this mad rush to close right before those weekends, and many things are done last-minute,” Penner says. More mistakes can occur if people are rushing through their paperwork to beat the Friday deadline, he says.
Instead, Penner suggests setting the closing date for the middle of the week, so that participants aren’t as hurried.
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What Happens After Closing
After closing is completed, its a good idea to take that big stack of documents you just signed, make copies and store them in a secure spot. You may need these again in the future.
You may also consider getting the locks changed, to ensure that there arent any keys to your new home floating around in the pockets of strangers.
Then, you can begin the somewhat tedious process of making your move official by alerting all the necessary authorities and companies of your change of address, starting with the U.S. Postal Service.
Average Closing Time For An Fha Loan
It takes around 47 days to close on an FHA mortgage loan. FHA refinances are faster and take around 32 days to close on average.
FHA loans generally close in a very similar timeframe to conventional loans but may require additional time at specific points in the process. For example, appraisals on FHA loans must be performed by an FHA approved appraiser, and any safety or habitability issues must be fixed before your loan is allowed to close. The large difference in closing times between FHA refinances and purchase loans is likely due to the expedited process afforded by FHA streamline refinances.
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What Are Construction Loan Interest Rates
Interest rate ranges will differ based on whether you have a construction loan to finance just the construction period or whether you have a combined single-close loan that blends the construction and the permanent mortgage together. The construction-only loan is considered a bit riskier. The rates for these are in the 5% to 10% range, and typically at least 5% higher than traditional permanent mortgage rates to buy an existing home.
Combined single-close construction loans are a bit closer to the lower permanent financing loan rates because they account for a much longer term, such as 30 years. Your credit history, and sometimes the size of your down payment, will impact your construction loan interest rate.
How To Choose The Right Closing Date
In this article:
Choosing your closing date depends on a number of factors.
Understand also that its better for you if you can get your closing documents ahead of time and review them before signing. That removes a lot of pressure, but it means you need to do your part to close your loan quickly.
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Figure Out Your Break Even Point
When you want to determine the best time of the month to refinance a mortgage, or year, always figure out your break even point.
If you can break even within 36 months, thats OK provided you KNOW you plan on staying in the house for another five years. A break even point longer than 36 months is just not worth the time or effort because nobody knows the future for sure. The median homeownership duration is only 5.9 years to give you a point of reference.
In a shaky economic recovery, investors tend to pile into US Treasuries. So, in other words, investors would rather invest in a risk-free asset that barely keeps up with inflation instead of buying Apple stock.
In a bull market, investors tend to sell treasuries and buy stocks or other instruments because they feel the risk reward ratio is better.
Even if The Federal Reserve is raising rates, that doesnt necessarily mean mortgage rates are going up. The market determines rates, not the fed.
Slow economic recovery + government intervention means everybody should be refinancing their mortgages regardless of what time of month or year. But, now its time to strategize when to refinance to get an even lower rate at the margin. Its all about understanding a persons motivation and understanding the spread.
How To Be Prepared For Closing Costs
At least three business days before closing, your lender must send you a Closing Disclosure. This form lists all final terms of your loan such as closing costs and the details of who pays and receives money at closing.
Review each cost carefully ahead of time and compare it to your original Loan Estimate. This is the form you received soon after you applied that told you the estimated interest rate, monthly payment, and total closing costs for your loan. If anything has changed, ask your lender why.
Double-check your monthly mortgage amount to be sure everything was calculated correctlyand that you really can afford it. Your mortgage payment shouldnt exceed 25% of your monthly take-home pay.
How Long Does A Home Closing Take
The amount of time a home closing takes will depend on a few factors.
Buyers who have been pre-approved for a loan, instead of pre-qualifying, are often able to close sooner. The pre-approval process means an underwriter has checked certain facts and details ahead of time. That helps to speed the closing.
No matter when in the process it occurs, the underwriter must review and fact-check the buyer’s job, bank accounts, and credit report as provided by the lender. You can’t close the purchase without their say-so.
Closing might be delayed if a paper is missing from the loan file, such as a preliminary title report or a seller’s condition of sale. Make sure all papers are in order if you want to speed up the sale.
Underwriting can be finished in a few days, or it could take up to a week.
Federally related mortgage loans often close within 30 days. However, special first-time home buyer programs, such as those involving help with the buyer’s down payment, might take 35 to 50 days. These special loans may need the OK from two underwriting processes, not just one.
Determine Your Financial Priorities
Whats more important to you better short-term cash flow or reduced closing costs?
If you schedule the closing for late in the month, youll pay less interest at closing. If you set the closing for early in the month, youll give yourself more time before the first mortgage bill arrives.
For example: if you close in September, your first mortgage payment is due December 1, but prorated interest for the month of September is due at the closing.
If you choose September 25 as a closing date, youll owe just five days interest at the closing, whereas if you close on the 5th, youll pay 25 days interest at the closing a sum that could easily total in the hundreds of dollars.
However, if you close on September 5 instead of the 25th, youll pay more interest at the closing, but you wont have to come up with the first mortgage payment for eight weeks .
In the long term, neither strategy actually saves money. However, they do provide you with options the option of either paying less at the closing or giving yourself more time to collect your first mortgage payment.
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How Long Does Closing Day Take
Closing day is the end of your home buying process, and arguably the most important part of it.
On closing day, youll:
- Receive your closing documents. Theres a lot of paperwork, so come prepared to keep it organized.
- Transfer money. Youll need to pay your down payment as well as any closing costs. Your lender will pay the mortgage loan , and the seller will receive their money. A closing agent will make sure that money is sent where it needs to go.
- Show proof of insurance. Before the lender agrees to fund the loan, theyll want to see proof of homeowners insurance.
- Have an escrow account set up. Youll also make your initial deposit into the account.
- Get ownership of the home. Once the money has been transferred and forms have been signed, you become the legal owner of the home.
So how long does closing take when you reach closing day? That can depend on how long the paperwork all takes to get signed.