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The closing on a home purchase, for the most part, is a formality (or even a celebration of sorts) for accomplishing all that had to get accomplished to make the transaction happen. Over the course of at least a month lenders, attorneys, title agent, buyers, sellers and agents have worked diligently to make it to the closing.
However, that does not mean that all closings take place without a hitch, or without the entire process falling apart. It happens, and it’s worth knowing some of the common reasons why a real estate transaction might fall apart at the last minute.
Qualifying for a loan means that you’ve made the right choices to ensure that your credit is in good standing, that you’ve limited credit card deb, eliminated unnecessary spending and held a steady job/income.
As most folks know, however, things can change in an instant. A layoff from a job, an unexpected car purchase or other event impacting your finances befalls you.
It’s important to remember that buyers are working towards a home purchase based on their pre-approval. The actual loan itself is not formalized until the closing. If you eat into your savings, make a large purchase or lose your job prior to the closing, the lender must take into account any new developments and your ability to pay back the loan and make the required changes. This can include being disqualified from getting a mortgage.
It’s possible that a previously unknown loan against the property at hand is discovered, and a 3rd party is attempting to recover a debt. This can happen right before a closing and even after a closing. This is where a title search and title insurance come in to play. A thorough title search should uncover all potential claims on the value of a property. A title insurance policy will then be in force should anything spring up after the home purchase.
A Low Appraisal
A final appraisal on the property is conducted by the bank with the goal of ensuring the property is worth the price being paid for it. It considers the neighborhood, recent buying history and the property features.
A nightmare scenario can come into play when an appraisal comes in well below the agreed upon price of the property. Simply put, a lender will not lend more than the property is worth. This means that if the property comes in too low, the lender may back out, or the seller may have to come up with cash to make up the different between the appraised price and the purchase price. This is often difficult for buyers to do.
This is where experience is critical in real estate. A seasoned agent would likely be able to avoid this issue by pricing the property correctly in the first place. Similarly, an experienced agent will be able to take the new appraisal and negotiate a new price in view of the latest information. However, if this is an unexpected development it’s possible the sale can fall apart.
Principle Abstract has years of experience navigating the ebbs and flows or real estate transactions and conducting high quality title and settlement services. Our experienced team of professionals identify and root out any potential issues that might stop a home purchase and put the buyers at risk.
Looking to purchase property? Give our office a call for more information on our services and to get started.