You’ve made an offer on a house, and it’s been accepted.
Congratulations! You are now “under contract” to purchase a house. But when can get you get the keys and actually move in?
In other words, “How long does it take to close on a house?”
According to realtor.com, a recent study found it now takes an average of about 50 days. This is up from an average of 40 days in January 2015. The main reason for the increase can be attributed to the Consumer Financial Protection Bureau’s implementation of TRID (TILA-RESPA Integrated Disclosures), which provides more protection to homebuyers but also requires additional paperwork and disclosures. As a realtor in Virginia, I usually recommend a settlement date about 35-45 days out to ensure enough time to get everything done.
However, the time to close, or settle, on a house can be influenced by many other factors. To delve into this a bit more, I spoke to Nina Yim, owner and principal of Capstone Settlement Group in Falls Church, Virginia, who has handled hundreds of real estate transactions.
According to Ms. Yim, the time it takes to close on a house can vary greatly. She has closed cash purchases in as little as 2-3 days when there is no HOA (homeowners association). The transaction is only limited by the time it takes to conduct a title search. That’s a best case scenario. Most agents usually allot about 2 weeks for cash purchases.
On the other hand, Ms. Yim stated that, in one instance, a new construction has taken up to 8-9 months to close. After the contract was ratified, the builder ran into multiple delays, mainly caused by inclement weather. This is a rare case, but new construction transactions typically take a little longer to close than resale purchases.
As you can see, the answer can vary greatly. Here is a list of what you can expect, depending on your situation::
- 2-3 days – This is considered an extremely fast close. This would be a cash purchase with no HOA and no title issues.
- 5-7 days – This is a very fast close. It will also be a cash purchase. The buyer has time to conduct a home inspection and review HOA docs. Title issues must be resolved very quickly.
- ~14 days – A typical cash purchase takes about 2 weeks. This gives the buyer ample time to conduct a home inspection, review HOA docs, and get anything else in order.
- 20-30 days – With a mortgage, a 20-30 day close is considered very fast. You probably won’t be working with a big bank in this case. Most likely, you will be working with a correspondent lender that does their underwriting in-house and has very fast response time.
- 30-60 days – The typical transaction with a mortgage will fall into this range. The bottleneck is usually getting final approval on financing. This also provides ample time to conduct negotiations for home inspection repairs, appraisals, and any other things that need to get done.
- 60 days+ – Anything over 60 days is considered to be relatively long. New constructions can easily fall into this range when the construction on the house is not yet complete. Other delays (see below) may cause otherwise standard transactions to fall into this range.
Since most residential real estate transactions (not including rentals) are resale transactions with borrowed money (i.e. a mortgage), we’ll focus on that.
Related blog posts:
- Should You Rent or Buy? Thoughts From a Realtor
- Homebuying 101: A Quick Guide for First-Time Homebuyers
Here are some of the factors that influence the closing process and some possible causes of delay:
- Buyer Financing – If a real estate transaction is delayed or canceled, buyer financing is usually the main culprit. Getting a mortgage requires hours and hours of due diligence by the lender. The lender will want to see the buyer’s past tax returns, pay stubs, bank statements, gift letters (if applicable), loans, credit report, and much more. The lender needs to make sure the buyer has the ability to repay the loan. During this time, don’t take on any new debt (e.g. credit cards, new car, etc.) because your lender will definitely take that into account. Also, make sure you get any documentation that the lender requests as soon as possible to avoid unnecessary delay. The main thing the lender is looking at is your DTI (debt-to-income ratio). Also, don’t forget you’ll need to call your insurance company to get homeowner’s insurance, which is required by the lender.
- Appraisal – An appraisal is an estimate of the value of the subject property and is required by the lender. Even though it’s required by the lender, the buyer pays for it (usually about $500). If the appraisal comes back at or above the sales price, everything is fine. If the appraisal comes back low, you could run into issues. A lender usually won’t make a big deal over a small discrepancy. However, if the appraisal is substantially lower, the lender starts to worry about the value of the collateral. If the buyer defaults on the loan, the lender wants to make sure it can recoup as much as possible. With a low appraisal, the lender may want the buyer to negotiate a lower sales price or come up with a larger down payment, which could cause delay.
- Home inspection – Although not absolutely necessary, as a realtor, I always recommend a home inspection. These days, it is typically about $500-$700, depending on the size, age, and price of the house. The home inspection, along with the appraisal, are the two somewhat expensive out-of-pocket items paid outside of closing. A home inspector goes through the house with a fine-tooth comb and educates the buyer (and the realtor) on how to maintain each part and what could go wrong. Then, the inspector writes up a report detailing anything that should be repaired or could be potentially hazardous. If you have a home inspection contingency, you can usually negotiate repairs you’d like the seller to make or get some sort of monetary credit at closing. If the seller agrees to repairs, these repairs need to be taken care of as soon as possible. Not making the repairs in time can delay the closing.
- Radon inspection – These days, many buyers choose to do a radon inspection along with a home inspection. Here are the EPA guidelines on radon. A radon inspection typically costs about $150. A radon kit is left on the lowest level of a house in closed-home conditions for about 48 hours. It records the amount of radiation in picocuries per liter (pCi/L). Every home has a little bit – most reports I’ve seen had about 1-2 pCi/L. The EPA’s action level is 4 pCi/L. Although levels above 4 pCi/L are rare, it is common in certain geographic areas (I’ve seen it once in northern Virginia). At this level, it is recommended that a radon mitigation system be installed (about $1,000). Usually, the seller will pay for this. If this isn’t properly installed or done in time, it could delay closing.
- Contingencies – In addition to the financing, appraisal, home inspection, and radon inspection contingencies, the buyer or seller could have additional contingencies. Some of the most common are that the buyer must sell his current home or that the seller must buy a new home. If these contingencies aren’t released, it could either delay closing or cause the transaction to fall apart.
- HOA documents – In many states, the homeowners association needs to provide a packet of documents called a resale disclosure package (“HOA docs”) including such things as meeting minutes, financial statements, and bylaws. In Virginia, once the HOA docs are delivered to the buyer, the buyer has 3 days to review these documents and is allowed by law to void the contract for any reason whatsoever, if desired. Delay in getting the HOA docs to the buyer can delay settlement.
- Title issues such as liens and judgments – Property tax liens, unpaid judgments, mechanic’s and contractor’s liens all must be paid before the property can be passed from the seller to the buyer. Any unpaid liens or judgments that are not cleared can cause a delay.
- Survey issues – Surveys are conducted to determine where the boundary lines of a property are. When there are boundary line encroachments or disputes, the issue must be resolved before settlement.
- Issues at the walk-through inspection – A few days before you close, you typically walk through the house one last time to make sure any repairs that were agreed upon were done properly. You also want to make sure everything is still working and that there aren’t any major discrepancies in the condition of the house. Since some walk through inspections are conducted on the morning of the day of closing, finding major issues at the walk-through inspection can cause problems at settlement. This has happened to my clients before, and we have come up with alternative solutions to settle on time (e.g. escrow or credit funds for repairs).
There are many things you can’t control in the contract to close period. Here are some ways to ensure that you will close on time.
- Be responsive. As a buyer, a lot of people will be asking you for documents and paperwork, especially the lender. If your agent, lender, settlement agent, or anyone involved in the transaction asks for something, try to respond right away or work on getting the required documents as fast as possible.
- Be proactive. Try to think of any issues that may come up and take care of them before anyone asks. If you’re starting to look at houses with your agent, get in touch with a lender and get preapproved first. If you feel like your agent is forgetting something, give a friendly reminder about the task. Agents are busy people, and they can overlook things too.
- Be financially ready. Try to pay off any short-term debts such as credit cards, student loans, and car payments. Save up funds for a good down payment, an emergency fund, and closing costs. Don’t make any major purchases once you are under contract, and don’t open any new credit accounts.
Related blog post: Dave Ramsey’s Guidelines for Buying a House
Closing on a house takes some time, and it will require some effort on your part. If you have a good agent, he or she can help you connect with lenders, home inspectors, and settlement agents, and keep track of all the tasks required to close on time.
It takes a lot of time and energy to close on a house. Be grateful for what you have and enjoy your new home!
Photo source: Pixabay