The Repercussions of a Mortgage Not Closing on Time
Signing a purchase agreement for a home is an exciting day for both buyers and sellers. After possibly months of searching for the perfect home, buyers can breathe that first sigh of relief knowing what home they’re going to buy, at what price, and on what date. It’s the first time buyers can start to make real plans for their future in that home.
Once a purchase agreement has been signed, though, there is plenty of work to do to ensure the purchase closes on time. This is the stage of a home sale when mortgage companies do the heavy lifting, which can include:
- Organizing and gathering the buyers’ financial documents
- Arranging and analyzing the home appraisal
- Evaluating items in any home inspection that should be fixed. Home inspections are optional.
- Possibly consulting a government entity for certain mortgage types such as USDA loans
What makes the mortgage company’s job even tougher is that, on most occasions, there are about 30 calendar days to complete all the work. While some of the responsibility for closing on time falls on the shoulders of the buyers, who must supply all requested information, the bulk of the work falls to the mortgage company.
It’s extremely important to have a lender that takes its job seriously. The mortgage company should ensure a home closes on time and is invested in the process. If it doesn’t happen, the ramifications could be serious.
What Happens to Buyers If Closing Doesn’t Happen on Time?
If a home purchase doesn’t close on time because of the actions of the buyers or the mortgage company, the buyers could pay a hefty financial and emotional price. Regardless, if buyers miss a closing date, there are 2 basic options:
- Break the contract
- Get the sellers to agree to an extension
The first option isn’t really much of an option at all. Buyers would be foolish in almost all cases to back out of the sale just because they aren’t going to close on time. Doing so would most likely mean they’ll have to forfeit their earnest money deposit, which is often a substantial sum, or spend more time and money trying to litigate to get it back.
Getting sellers to agree to an extension on the closing is usually the best option. Some sellers will be easily amenable to an extension, but keep in mind they don’t have to be. The purchase agreement is a legal contract both parties signed and, therefore, neither party has to agree to make changes to it.
While a request for an extension of only a few days shouldn’t be a problem in most cases, often times, a missed closing due to issues with the mortgage company is going to take more than just a few days to clear up. In these cases, buyers might be requesting an extension of a couple weeks or more.
So, what happens then?
Why Would Sellers Not Agree to a Closing Extension?
Sellers are quite motivated to see their home purchase agreement close, but there are factors that could soften them on the urgency of doing so in the time since they signed the purchase agreement almost 30 days ago.
Here are a few reasons why sellers might not agree to an extension, or why sellers could ask for compensation to do so:
- The sellers have purchased a new home and now have two mortgages
- The sellers have signed an agreement to purchase a new home that is contingent on selling their current home
- The sellers are having remorse and think they can get a higher sales price for their home
- The buyers left a bad taste in the sellers’ mouth with multiple requests for repairs following an inspection
Not closing on time can have serious financial ramifications for sellers, not just buyers. In the first two points above, sellers could suffer greatly from not closing on time, either being forced to pay two mortgages for a period of time or having to pass up the next home the sellers were going to buy.
In both of these cases, the sellers might ask for financial compensation from the buyers if they want to extend the closing date. This could be a significant added cost to the buyers that they might not be able to afford.
How a Mortgage Company Can Help
Mortgage companies have skin in the game, too, when it comes to closing on time. In addition to the bad taste it would leave in their clients’ mouth and the effect it could have on the company’s reputation, it could also result in them losing a loan altogether.
That’s why it’s essential buyers work with a mortgage company — like Embrace Home Loans — that cares about all of its customers and puts its money where its mouth is. Embrace Home Loans has a Guaranteed On-Time Closing program that gives you $2,500 if it is at fault for a conventional, VA, or FHA loan not closing on time.
In addition, Embrace Home Loans also offers a program called Approved to Move™, which replaces a standard pre-approval letter with a fully underwritten approval that buyers can take with them on their home search. With the bulk of the legwork completed before the home purchase contract is even signed, Approved to Move™ can play a role in helping closings happen on time.