Tips for homebuyers to avoid closing delays
The closing has to be delayed. Now you're stuck paying not only for the moving van but also for storing your household goods somewhere. Worse, you've already given back your apartment to your landlord, or closed on your old house, so you have to find somewhere to live until you can close on the new place.
Even worse yet, since you won't meet the deadline to close on the house you're buying, the seller may get antsy. So antsy, in fact, that he may declare your deal null and void and sell the place to someone else.
All of these scenarios are possible these days because closings are taking longer than they used to. The reason: Many lenders are still having trouble coming to grips with new federal Know Before You Owe settlement rules that went into effect in October.
Lenders and their vendors had almost two years to figure out how to combine the old requirements from the Truth in Lending Act and the Real Estate Settlement and Procedures Act into the new TILA-RESPA Integrated Disclosure, or TRID, forms. But they're still having trouble.
Before TRID, according to the National Association of Realtors, it took roughly 30 days to close. But in November, it took an average of 40.5 days. And according to Ellie Mae's Origination Insight Report, December closings took even longer than that — up to 50 days.
The key to closing now is the new Closing Disclosure, the statement of final loan terms and costs, which must be given to borrowers at least three days prior to settlement. Lenders cannot change any of those costs once the CD has been issued; otherwise, they are responsible for the differences.
“That's why lenders either wait until the last possible moment to issue the CD, or they have a strict list of items that must be completed in the loan process prior to issuing the CD,” said Daniel Jacobs of Michigan Mutual.
So how do you avoid a TRID-related delay in your closing? Here are a few ideas from the experts.
Prior to TRID, you could lock in your rate with the lender and close the next day. Now, the rate must be locked in prior to the CD being issued. So lock it in early, advises Jacobs.
Pay extra for a longer rate lock if you have to. Typically, lenders will guarantee their rates for 30 days, but they will lock it in for a longer period at a price. It may be worth paying a few hundred dollars for the peace of mind in knowing that however long it takes for the paperwork to be done correctly, you won't lose the house.
Similarly, invoices or quotes for homeowners' association dues and insurance premiums also must be accounted for on the CD, so take care of these early. And if the lender vows to contact the homeowners' association or your insurance agent on your behalf, ask for confirmation.
“If you are selling one home and moving into another, give yourself more time for issues arising on both ends of the transaction,” said Becky Walzak, a longtime mortgage business consultant.
If your lender discovers new information toward the end of the transaction, the closing will be postponed. “And until it can be proven otherwise, the new information will be presumed to be an issue,” Koss said.
“Any movement of money through bank accounts or credit cards, or job changes, can cause your loan to be postponed or denied,” Koss said. This is true even if you've already been approved because all loans are really only “conditionally approved” until just a few days before closing. The lender can recheck your financial picture at any time.
“You must keep your profile exactly as presented until after closing,” Koss said. “This is one of the biggest delays in lending, and it causes mad scrambles to keep deals on track.”