Closing escrow isn’t a simple process. A number of things can go wrong and derail the transaction. If you’re not vigilant, any of those things can prevent you from taking ownership of your dream house.
That’s one of the main reasons homebuyers hire Realtors. A Realtor’s job involves making sure the escrow process stays on track.
But even an experienced agent can’t prevent every possible issue from wrecking escrow. Unanticipated problems can surface and bring the process to a grinding halt. Read on for 5 such problems, along with useful tips on how to deal with them.
#1 – The Appraisal Is Lower Than Expected
The bank will want to know that its investment – the loan it’s extending to you, the buyer – is protected. If you fall behind on your monthly mortgage payments and the bank decides to foreclose on the property, it needs to know it can recover its funds. That’s the reason your lender requires an appraisal.
Sometimes an appraisal will come in lower than expected. If that happens, the bank will be disinclined to extend a loan for the original price. Your options are to either come up with the difference on your own or to convince the seller to drop his or her asking price.
#2 – The Lender Refuses To Extend The Loan
Your lender may decide to withhold financing for your new house due to a variety of circumstances. For example, if your lender discovers inconsistencies on your mortgage application, it may require you to explain them before extending the loan. The lender might also pull financing if interest rates spike unexpectedly, you’re fired from your job or you take on a substantial amount of new debt.
Avoid such issues by making sure your loan application is truthful and refraining from taking on new debt. (Unfortunately, there isn’t much you can do about spiking interest rates.) In addition, do everything you can to stay employed – at least until the loan has been written.
#3 – The Seller Breaks The Purchase Agreement
You and the seller will enter into a purchase agreement before escrow begins. That agreement will detail everything from the purchase price and down payment to the need for an inspection and clear title. It will also stipulate the conditions under which either party can back out of the deal.
A seller may back out for numerous reasons. He or she might receive a higher offer from another buyer or balk at performing major repairs. The seller might also change his or her mind about relocating in the first place.
Unfortunately, there may be little you can do to convince the seller to uphold the terms of the purchase agreement. But knowing the deal can fall through for those reasons can help to prepare you for the possibility.
#4 – “Clouds” Are Hanging Over The Property
Clouds are essentially claims on the title of a property. Common clouds include tax liens for unpaid state and federal taxes, contractors’ liens for unpaid invoices and improperly-recorded easements.
A property that is shadowed by clouds should give you pause. If you buy the property, you may be forced to pay off other parties – for example, the IRS – to have the clouds removed.
A title search will reveal whether there are clouds hanging over the house you’re thinking about buying. If you uncover any, ask the seller to resolve them. Make the purchase contingent on their resolution.
#5 – The Inspector Find Major Problems
Your lender will require you to have a professional inspection performed on the house you’re buying. The purpose of the inspection is to uncover serious problems that may be hidden from view.
Examples of such problems include termite infestations, unsafe ceilings and walls, improper drainage, poor plumbing and issues with the house’s circuit breakers. If the inspector finds something worth noting, he’ll let you know. You can then ask the seller to fix the problems or lower his or her asking price.
It’s important to remember that your dream house isn’t yours until escrow closes. Review the 5 potential snags we’ve outlined above to ensure it closes without mishap. When you’re ready to shop for a home, hire an experienced Realtor who will monitor the escrow process and help keep it on track.