The road to closing can be exciting and stressful for both the buyer and seller. Both parties are preparing to take life-changing steps and are motivated to make the deal go smoothly. But challenges can arise—so it’s good to be prepared. See these potential roadblocks and how you can avoid them.
Roadblock #1: A Low Appraisal
The home appraisal may come in below the sales price, which suggests you’d be overpaying for a home, ultimately affecting how much your financial institution would lend.
- With the appraisal, you now have leverage to renegotiate the sales price with the seller. If the home was overpriced to begin with, the seller might be willing to work with you rather than going through the trouble of relisting the property.
- In the event that the lender grants you a loan based on the appraised value, you may be able to make up the difference in cash.
- You can back out of the contract if it has an appraisal contingency clause. The clause typically states that the contract is subject to the property appraising at the contract sales price or more, or the contract may be canceled by the buyer.
Roadblock #2: A Rejected Loan Application
Your loan application may be rejected, potentially due to changes in your financial situation or in the lender’s loan guidelines.
- If your loan application is rejected because of insufficient income or funds, talk with your loan officer about programs for low- to moderate-income borrowers, such as a VA loan. These programs have lower down payment requirements.
- If your loan is turned down because of your credit history in a credit report, you’re entitled to a free copy of that report if you request it within 60 days. Check the report and dispute any errors you find with the credit reporting agency. Allow 30 days or so before checking to see that changes have been made. Then, ask the credit bureau to send a new copy to the lender for re-evaluation.
- Temporarily hold off on making major credit purchases or taking on other obligations that increase your debt levels.
Roadblock #3: A Bad Home Inspection
Your home inspection may turn up serious or unexpected problems.
- If your offer comes with a home inspection contingency, you can walk away if you and the seller can’t agree on needed repairs.
- If the seller doesn’t agree to make the repairs, you may be able to negotiate a price reduction. Any savings can be put toward making the repairs yourself.
Note: If the house requires serious repairs, then the final walkthrough becomes especially important. This is your chance to check the contractor’s work on any repairs made and to make sure everything works properly.
Roadblock #4: The Title Search Spells Trouble
A property title search might turn up legal problems with the property, such as a revelation that the home’s seller doesn’t legally own some or all of the property, or that there are undeclared outstanding mortgages, liens, or unpaid taxes.
- If the title search is conducted prior to sale of the home, you can ask the seller to resolve the problems before the purchase is finalized.
- If title problems were discovered after the sale, title insurance (also known as a “loan policy”) owned by you or the seller protects you against these issues.
Preparation Is Key
There may be bumps in the road before closing, but being prepared to handle them helps avoid the potential disappointment of the deal falling through and you not getting the house you want. Consider these potential roadblocks when building in contingencies in your contract. This will give you the power to negotiate solutions or even walk away, should major issues arise.
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