The process of searching for a home, negotiating the price, getting through inspections, and obtaining a mortgage is stressful enough. Just when it appears the finish line is in sight, something can pop up to delay or prevent closing the deal. While many people experience a relatively smooth process to close, you can’t overlook the fact that major things can go wrong, and some things are out of your control. Here’s a list of possible glitches to understand when making a home purchase.
Low Appraisal. If you’ve applied for a mortgage, the lender will get an independent appraisal of the home you’re purchasing. If the purchase price is $300,000 and the appraisal comes in at $290,000, the bank won’t cover the difference. Your options are to come up with the $10,000 on your own, negotiate a lower price, or terminate the deal (provided your contract included a standard appraisal contingency).
Unattainable Insurance. Homes situated in flood zones or earthquake-prone areas could face the lender’s requirement to purchase costly insurance. Also, if a home is in major disrepair or has a long history of claims, it could be uninsurable. Buyers need to do their homework on where they want to live before making an offer.
Financing Fails or Terms Change. Even with a preapproval, life situations can make a lender deny the loan. Loss of a job, divorce, or a major purchase that changes one’s credit are just a few examples that can hinder a loan approval. Or the lender may change the terms which the buyer finds unacceptable. Failing to find appropriate financing in a reasonable amount of time could terminate the contract.
Property Lien. A title search is required on all home sales. During this search any liens on the property will be revealed. A lien is an unpaid debt that lists the house as collateral. Until the lien is satisfied, a sale can’t go through.
Repairs Stated in the Contract are Not Complete. If major repairs agreed to in the sales contract are incomplete at closing (or prior to closing during a walk-through), both parties need to decide if the closing will continue with compensation to the buyer or if it will be delayed until the work is done.
Someone Backs Out. Occasionally a seller or buyer changes their mind for whatever reason and backs out of the deal. Because a contract is involved, there are a variety of legal consequences. A buyer who backs out after the inspection period will likely lose their earnest money and could possibly be responsible for the difference in price if the seller has to sell at a lower price. A seller who backs out could be responsible for buyer costs incurred for inspections and lender fees, or in extreme cases, be forced to follow through on the sale.