With the market heating up the tendency of many buyers is to offer a quick close as an enticement for the seller to accept the offer. While this seems like a smart play, the buyer could actually be putting themselves in a terrible position of potentially defaulting on the contract. Currently lenders, appraisers and title abstractors are overloaded and many are taking much longer than normal to complete loans, appraisals, and title searches. Any delay caused by the increased volume could delay the buyer’s ability to close by the closing date set forth in the contract and could place the buyer in default. If the buyer defaults, the seller could keep the earnest money and sale the house to someone else.
Here are a couple of suggestions for selecting a closing date:
If the buyer offers a non-cash deal that is closing in less than 30 days, it is very possible the closing date could be missed. While that may be an attractive offer to the seller, before making this offer it is advisable to contact the lender and closing attorney to ensure that the time frame can be met.
Quick closings are rarely possible for VA and USDA loans. Consult with your lender as to the current turn times. Some of these loan products are taking 45 days or longer.
If the offer is for cash, do not set the closing for 10 days from the offer. It is unlikely that title can be completed in this short time frame. We recommend a minimum of 15 days after contract ratification.
If offering a quick close, base the closing date on ratification of the contract. For example, if the buyer selects a date that is only 10 or 15 days from the date the offer is presented and it takes 4 or 5 days for the parties to ratify the contract, the buyer could be looking at closing in less than 5 or 10 days from ratification which may be very difficult.
Do not think pushing your favorite lender or closing attorney will make it happen. Many of the delays caused by a hot market are out of everyone’s control. Remember, your lender cannot control how long it takes for the appraiser to complete the appraisal, nor can the closing attorney make the title abstractor complete the title work any quicker.
Close sometime other than the end of the month. This is by far the busiest time of the month. Remember, it does not cost your buyer any more to close at a different time of the month. Interim interest is based on the number of days they own the property. If your client closes on the last day of the month they would have one day of interim interest but their first payment would be due in 30 days. Closing on the 20th or so would mean about 10 days of interim interest, but it also means your client’s first payment is in 40 days.
Lastly, DO NOT WAIT until inspections are completed to order title or to apply for the loan. Due diligence can take as long as 15 business days to complete. When weekends and holidays are added due diligence may take twenty full calendar days leaving the buyer with 10 days or less to process a loan and close. Most lenders require a title commitment and other title documents from the closing attorney several days prior to sending the loan package to underwriting, so getting a contract over to the lender or attorney after due diligence will extend the closing timeline significantly. Educate your client that the risk of paying for title work and appraisals on a cancelled transaction is a lot better than missing the closing date and being in default.
Blair Cato Pickren Casterline remembers Elizabeth “Libby” Hunt. Libby was a long time mortgage lender and real estate agent in the Midlands. She passed suddenly and unexpectedly from an aneurysm this past weekend. Libby’s smile and laughter will be greatly missed.