When you've found a home you love and can't wait to call it yours, the homebuying process can seem like it moves at a snail's pace. It might take you a day to find your dream home, but can often take up to 60 days to close. This waiting period isn't intended to drive you crazy. There are reasons it moves at the pace it does. Here are the top five.
1. Buyers and sellers must agree upon a price
House prices are up for negotiation. Buyers often pay a different amount than the asking price. You might put in a lower offer in hopes of getting a better deal. Or, if multiple buyers set their sights on a property, you might need to offer more than the listing price. Either way, you submit your bid and wait for the seller's response. This can take anywhere from a few hours to a few days. Fortunately, offers usually include a limit on how long the seller can take to respond.
The seller will then accept, decline or counter your offer. Some parties go through multiple rounds of counteroffers before settling on a price everyone can agree on. This is where a real estate agent comes in handy, as they can communicate with the listing agent and see what can be done to move things along.
2. Mortgage rules are stricter than ever
In 2014, the Consumer Financial Protection Bureau issued a new set of mortgage lending rules — the Ability to Pay rule and the Qualified Mortgage rule — designed to reduce the chances of borrowers defaulting on a loan or having a property foreclosed. In a nutshell, these rules require lenders to dig deeper than ever to confirm that a borrower has the ability to repay a home loan. This can take time.
Being prequalified or preapproved for a home loan can speed things up since you've already gathered much of the income and credit information needed to confirm how much you can afford to borrow. However, lenders cannot skip the verification process. Working with a home lending advisor can help your determine the best type of mortgage loan for your needs, and they can let you know what information and documentation you’ll need to provide.
3. You'll need to get an appraisal and may want to get a home inspection
The inspection and appraisal are two of the most important steps in the homebuying process. The lender is required to obtain an appraisal. However, the decision to get a home inspection is entirely up to the buyer and is usually not required by a lender. Typically, you'll schedule a home inspection first. An experienced, professional inspector will evaluate the overall condition and structural integrity of the house. Check with your real estate agent if you need a referral, they can likely recommend a reputable inspector.
Inspections usually take place within a few days to a week of the seller accepting your offer, depending on the inspector’s schedule. The inspection itself will take a few hours. Some buyers attend the inspection if they're available, but it’s not required. The inspector will send both you and the seller a copy of the report of their findings a few days later.
Based on the results, and as long as it's within the agreed-upon contingency period, you might request that the seller make certain repairs, ask for a credit to perform the repairs yourself or renegotiate the sales price. Depending on your contract's terms, the seller will have a few days to review and respond to your request.
You may also want to schedule additional inspections for things like termites, asbestos, mold and more. This will add time to the homebuying process, but you’ll have a better picture of the house’s overall condition.
Around the same time, your lender will have the home appraised to make sure it’s priced appropriately based on the house itself and comparable homes in the surrounding area. It can take several days to schedule an appraisal and get the results. It may take even longer during extremely busy times. If the house appraises for less than the agreed-upon selling price, you and the seller might need to agree to a new purchase price, or you may have to meet new loan terms. Consider adding a contingency clause in the contract to ensure the appraisal is at least the same as the sales price, otherwise you may have to put additional funds down to cover the difference.
4. The paperwork can seem endless
When applying for a mortgage, you'll need to fill out an application and provide your lender with the paperwork needed to calculate your debt-to-income ratio. Your debt-to-income ratio is the total of the monthly payments on the debt you owe divided by your monthly income. These debts include things such as car loans, credit card payments and student loans.
A variety of people, from loan officers to underwriters, must review these documents which can take a few weeks to complete.
To help make things move as quickly as possible, have the key paperwork ready in advance. This typically includes:
- The home purchase contract, signed by you and the seller
- Pay stubs for the last 30 days
- Names and addresses of your employers over the past two years
- W-2s for the past two years
- Completed and signed Form 4506-C (Request for Transcript of Tax Return)
- One to two years of tax returns
- Bank statements for two to three months
- Information on debts such as car loans, student loans and credit cards
- Pension income, Social Security income, or Disability payments, if applicable
- Dividend earnings
- Bonuses or overtime pay
- Security accounts such as stocks, bonds and life insurance
- Proof of earnest money payment, which is a deposit you give the seller to show you're serious about buying the home
If you have a co-borrower on the loan, you’ll both need to provide these documents.
Underwriters will review your application and paperwork, and it’s common for them to ask for additional information during their review. This might include updated bank statements or letters of explanation for things like credit issues and income or employment changes. The faster you can provide this information, the sooner you'll get to the closing table.
Underwriters may ask for verification of employment, which requires having your employer confirm your employment information. They might also ask for a gift letter from anyone who provided you with funds confirming how much they gave you and that they don't expect repayment. These types of requests can cause slight delays in the approval process as well.
Other circumstances that can delay or even prevent a home closing from going through include:
- The appraisal of the house is significantly different from the selling price
- The appraisal of the house is significantly lower than the selling price
- Your credit report shows new debt than was not included when you first applied for a loan
- A lien has been filed against either you or the seller
- Your loan offer has expired
- The fees in the original loan estimate have changed significantly
Providing documents quickly and being patient is key at this stage.
5. Everything must be in place for closing
After your loan is finalized, you and the seller will agree on a closing date and time. This is when you both sign the paperwork to officially transfer ownership of the home. A few days before closing, your lender will send you a closing disclosure to review and sign. This disclosure includes your loan terms, closing costs and any additional fees.
During this final waiting period, you should do a walk-through of the house to make sure the seller performed all requested repairs and that it’s in the condition you expect it to be. Any issues you encounter can delay closing.
While the actual closing process and documents needed will vary between states and even counties, expect to bring to the meeting or be asked to sign:
- Personal identification
- The purchase agreement and any add-ons or addendums
- Proof of earnest money deposit
- Proof that the seller fulfilled any obligations, such as repairs, certifications, pest inspections, home warranties, etc.
- Signed escrow instructions for both parties
- The seller's signed and notarized deed showing title transfer
- Your signed and notarized deed of trust and promissory note
- All your signed loan documents
- Deposit of your funds
- Deposit for your down payment and closing costs
Buying a home is a detailed process that requires a list of checks and balances to protect the buyer, seller and lender. You can't rush the process, but you can be prepared with all the necessary paperwork and expectations of how long it'll take before you can close on your new home.