The big answer
The 12-month period from July 2018 to July 2019 saw an average closing time -- submitting mortgage application to purchase -- of 43 days, according to research from Ellie Mae. That’s a drop of two days from their previous 12-month research. This is significantly down from early 2016, when closing times were averaging around 50 days.
The general belief is that the process takes between 30 and 45 days, although it can vary tremendously by state, region, and individual homebuyer. There are common factors that cause home closing delays -- “hiccups” to the process, essentially -- and we’ll investigate some of those in this article.
The common factors that delay closing
We’re going to start with the most common one, which is quite likely the one you expected to hear first:
Funding: Typically, the most common delay issue -- or second-most common aside from title issues -- is buyer financing. You can avoid this with an all-cash offer, although many individuals and families cannot do that. You can get a mortgage pre-approval from a lender, typically good for 60 to 90 days, and that can reduce delays around funding. A pre-approval process usually begins with a pre-qualification, which is not official in any way. That will take into account factors like debt-to-income ratio, paystubs, tax returns, credit scoresand generally see if you can afford a home. The pre-qualification and pre-approval processes can be timely, however; it can still take 30 days for a lender to complete due diligence once an offer is made. From there, the loan process goes to “underwriting” where they review your documents and the appraisal with a magnifying glass and make sure everything is accurate. More on this shortly...
Title issues: A common example of a title issue is a tax lien on the property. If you provide the title company with copies of satisfactions before the title search, you can avoid red flags. There’s also a concept commonly referred to as “clouds on title,” which is often a lien but can be a third-party claim on the property as well, or inconsistencies in chain of title (progression of the property’s ownership over time). Other examples of title issues could be purchasing a property where the sellers are divorcing or when the property is being sold by heirs - a process called “probate.”
Lack of homeowner’s insurance: This is often required via the mortgage before move-in, so acquiring homeowner’s insurance late in the process will increase the number of days to close. On top lender requirement, you want to shop the quote a bit to make sure you’re getting a solid policy at a decent price. Plus, the insurance is often included in your monthly PITI payment - Principal, Interest, Taxes, Insurance - and you’ll want to budget properly for that monthly payment amount. Thankfully, it’s relatively easy to learn what type of homeowner’s insurance you might need.
Appraisal issues: This is another hugely common delay cause, and often something you will hear your first-time homebuyer friends grousing about at social gatherings. For a mortgage to be approved, the lender gets an appraiser to value the home. If the appraiser’s value is low, the price of the contract sales price needs to be adjusted, and thus the lender needs to rework the mortgage. That’s time-consuming. And it can be a deal-killer sometimes. So, you want to get that done as soon as possible.
Short sales: A short sale is when a home is sold at a price lower than what the original owner still owes on their mortgage. In this context, the owner needs the lender to agree to a pay-off amount lower than the remaining balance on the mortgage. That’s also time-consuming, and often one of the more challenging processes associated with buying a home.
Inspection issues: This is very common as well. Home inspections generate long lists of what needs to be repaired in a house; sellers can make these repairs, but that causes a delay. Instead, oftentimes sellers will either (a) reduce the price of the house -- less common -- or (b) give the buyers a tax credit so they can make repairs on their own time.
Good faith estimate vs. HUD-1: When you put an offer on a specific property, the lender will give you what’s called a “good faith estimate” of closing costs. That’s a rough draft of the official document you will get, called a HUD-1. Ideally the good faith estimate and HUD-1 are within 10% of each other; if not, buyers may want to ask the seller to extend the closing date so they can secure alternative financing.
Boundary issues, or “survey” issues: This refers to boundary lines, property lines, walls, and fencing -- and these can be issues even if the home has been sold dozens of times before. Basically, the lender wants to be sure what they’re loaning your money on and if anyone else has put up a structure or easement that would be a problem for them down the road if they had to foreclose.
How do you overcome these issues?
The easiest path is to find a great real estate agent who has been down this road and will communicate and help you navigate right by your side. Everything begins with your finances and debts as a buyer but the path through a first-time home purchase can be extremely complicated -- and, quite frankly, a little bit overwhelming. You are frequently hearing terms and seeing forms that you’ve never in your life heard of, so you need a trusted guide to everything that’s happening. If you have a good communicator with experience in navigating closing, you are way ahead of the curve.
Above all, don’t worry! Issues arise in a huge percentage of closings, and have for generations. With the right people guiding you, you get through it and find a great home!