As a real estate investor, buying a new property is a significant personal and financial decision. While the process can be challenging sometimes, it’s all worth it once the transaction is complete.
Understanding how to purchase a house is vital to your success, and that’s particularly true of the closing process. One of the most important questions is, “How long does it take to close on a house?”
In this article, we dive into the finer details of the closing process.
Exactly How Long Will Closing Day Take?
The duration of the closing day can vary greatly, but on average, it takes about 1-2 hours. This includes final walkthroughs, signing legal documents, and potentially waiting for last-minute funding transfers. While you can expedite this process, you should allow ample time to ensure everything is done correctly and satisfactorily.
Signing Your Documents: The Process
During closing, you will sign several legal documents, each serving its unique purpose. Key among these is the promissory note, affirming your commitment to repay the mortgage, and the deed of trust, which secures the note.
Others include the closing disclosure, which outlines the terms and costs of your loan. A settlement agent typically guides this process.
Signing Your Documents: The Ramifications
By signing these documents, you’re entering into a legal agreement with your lender. You commit to repay your loan under the agreed-upon terms. Non-compliance could lead to foreclosure. It’s also your last chance to dispute charges and terms or to back out of the sale (depending on your contract terms), so understanding these documents is crucial.
Signing Your Documents: The Consequences
The primary consequence of signing your documents is that you are legally obligated to repay your mortgage under the agreed-upon terms. Failure to do so can lead to serious consequences with your mortgage lender, including foreclosure and damage to your credit score.
Closing Delays and Common Reasons For Them
Closing delays can happen for various reasons. Common ones include financing issues, such as a change in the buyer’s credit score or financial situation; appraisal issues, if the home’s value comes in lower than expected; home inspection problems; or issues discovered during the title search. Understanding these potential pitfalls can help mitigate delays in your closing process.
As an investor, closing delays are a massive headache, but they’re not the end of the road. Have a plan for managing anything that comes your way.
What Is Escrow?
Escrow is a neutral third-party process used in real estate transactions to protect the interests of the buyer and the seller. An escrow company or agent holds funds, documents, and sometimes the deed to the property until all conditions of the sale are met. It assures that the buyer will get the property as agreed, and the seller will receive payment in full.
The escrow process and the timelines involved
The escrow process typically begins after a seller accepts a buyer’s offer and both parties sign a contract. The buyer then makes an earnest money deposit into an escrow account.
From there, necessary steps like home inspections, appraisals, and completing the mortgage process approval occur. The duration can vary depending on various factors, but it usually takes 30 to 60 days to close.
Process: Buying a house With cash
As you grow your real estate business and gain access to more funds, you may find it possible to purchase a property with cash, which allows you to bypass many traditional steps associated with mortgage lending. After a seller accepts your offer, you’ll likely have to show proof of funds, conduct inspections, negotiate any repairs, and handle the final paperwork.
This process can be significantly quicker than financing, sometimes closing in as little as one week, given that there’s no need for a loan approval or appraisal contingency. The faster you close, the sooner you can find a tenant for your property or begin the fix and flip process.
How long do you have to close after the appraisal?
Once a home appraisal is complete and the report is satisfactory, you can close on your house within a week or two. However, this timeline can vary widely based on different factors, such as whether the home is being purchased with cash or a loan or if any issues arose during the appraisal that must be addressed before closing.
Common Delays In the Closing Process
The closing process of a home purchase is a complex interaction of multiple entities and events, all working towards a common goal. As meticulous as one might be, delays can occur for many reasons stemming from the intricacy of the process itself. These hold-ups, whether from financial concerns, appraisal discrepancies, or issues found during a home inspection, can add days, weeks, or even months to the timeline.
Understanding the common sources of these delays can help buyers and sellers alike prepare effectively and ensure a smoother house closing process.
Tip: don’t ignore a problem to avoid a delay. For instance, it’s frustrating if a major issue—such as a cracked foundation or deteriorating roof—comes to light during the home inspection, but don’t sweep it under the rug to save time.
Changes to the buyer’s creditworthiness
Any change to your credit report, credit history, credit score, or financial status can delay the loan approval process.
Home sale contingencies
If a buyer’s home sale contingency isn’t met—meaning their current home hasn’t sold—it can delay or even cancel the transaction.
The appraisal turns out to be too low
If the home’s appraisal value is lower than the agreed price, it can delay the process while new terms are negotiated.
Buyer’s financing falls through, or changes to buyer financing
If a buyer’s financing falls through or changes—such as a recent increase in their debt-to-income ratio—it can delay the closing process while new financing is secured.
Slow repair requests
The buyer or seller can postpone the closing if negotiations over requested repairs after inspection are drawn out.
Surprises during the final walkthrough
Discovering unexpected issues or unfulfilled agreement terms during the final walkthrough can cause delays.
Issues with the title on the property
Unresolved liens or disputes about ownership found during the title search can cause significant delays. Title insurance can help protect you against issues that arise with the title after your purchase.
Issues with inspections
If the home inspection uncovers problems needing repair, this can delay the process while repairs are made, or new terms are negotiated.
Average Home Closing Timelines
The timeline for closing on a home is contingent upon various factors, each contributing to the overall duration.
Typically, from the moment an offer is accepted to when the keys are handed over, the process can take 30 to 60 days, with some exceptions. This period is crucial for buyers and sellers, accommodating the necessary steps to ensure a smooth ownership transition. It may sound like a long waiting period, but it gives both parties the time needed to complete the necessary steps.
Understanding the average home closing timeline provides realistic expectations and allows for efficient planning during this pivotal stage of the home-buying process.
Negotiating the contract
Once an offer is made, both parties enter into negotiations. Factors like price, contingencies, and closing timelines are discussed. This process can take a few hours or days, depending on the complexities involved. Lean on your real estate agent to guide you and help you secure the property competitively.
Scheduling the home inspection
The buyer should arrange home inspections shortly after contract acceptance. This process allows the buyer to understand the home’s condition and can take a few days to a week, depending on availability and the time needed for the inspector’s report.
Finalizing the purchase agreement
The purchase agreement can be finalized once inspections are complete and any necessary adjustments are made. This step can vary in length but often takes several days.
Finalizing the mortgage application
Finalizing the loan application involves submitting necessary documents to your lender, and it can take a few days to a week, depending on the promptness of document collection and submission.
More about the application
This phase encompasses the verification and analysis of the documents submitted. Lenders verify income, credit score, employment, and other details, which can take several days to a week.
Disclosures
During this stage, lenders must provide loan estimates and closing disclosure forms detailing the exact costs of the mortgage. These must be provided within a specific timeframe, typically within three business days after applying for a loan.
Documentation
The documentation stage involves the careful gathering and submission of required forms. This can include proof of homeowners insurance, title search results, and inspection reports. Timelines can vary greatly based on the complexity of the transaction.
Appraisal
The lender will schedule an appraisal to determine the home’s market value. This usually happens shortly after contract acceptance and can take a week or more to complete.
Underwriting
The underwriting phase, where the lender evaluates credit risk, can take one to two weeks. The underwriter will review the appraisal, title report, and financial documents before making a loan decision.
Condition approval
Upon receiving loan approval, you may still need to meet document-related conditions or further verifications, potentially extending the process by a few days.
Cleared for final closing
Once all conditions are met, the lender gives the clear to close, and final closing documents are prepared. This preparation can take a few days.
Closing and funding
The closing day involves signing documents, transferring funds, and recording the deed. Once funding is verified, the keys are handed over to the buyer on the same day or the next.
How Long Does Closing Typically Take?
The time it takes to close on a home varies depending on several factors. On average, it takes 30 to 45 days from the accepted offer to the actual closing, where the keys are handed over. However, it can take longer in more complex cases.
This waiting period allows for necessary steps like the home inspection, appraisal, underwriting of the loan, and time to address any potential issues. It’s worth noting that all parties involved in the transaction play a role in the timeline, making communication and responsiveness crucial to stay on track.
Is It Possible to Speed Up Closing?
Speeding up the closing process is possible, although it depends on several factors. These can include the type of loan, the responsiveness of all parties, and the specifics of the home and its sale. Quick and open communication among all parties is key.
Additionally, getting pre-approved for a loan, having necessary documents ready, addressing any issues promptly, and scheduling inspections and appraisals as soon as possible can help expedite the process. However, balancing haste and due diligence is important to ensure a smooth and successful transaction.
Does Cash Help Speed Up the Process?
Cash can significantly speed up the time to close on a house. Cash buyers can bypass many steps that slow down financed purchases, such as the mortgage pre-approval and underwriting process and the home appraisal from the lender’s side. Moreover, sellers may favor cash offers, as they often equate to quicker closes and less risk of the deal falling through due to financing issues.
Consequently, a cash purchase can close in as little as one week, compared to the typical 30 to 45 days with a mortgage.
How to Get a Fast Home Closing
Achieving a fast home closing involves meticulous organization and prompt action.
Starting with mortgage pre-approval can save valuable time. From there, gather all required documentation early in the process, and maintain open, responsive communication with your real estate agent, lender, and other parties involved.
Schedule inspections and appraisals as soon as possible after the contract is accepted. If issues arise, address them quickly and efficiently.
Also, decide on your down payment so that you can gather the funds accordingly. And, of course, being flexible with your closing date can also accommodate the seller’s timeline and make the process smoother.
Remember, a fast closing should not compromise due diligence, so careful review and understanding of all steps is crucial to your success.
Closing time can and will impact your cash flow. Considering the anticipated timeline and your intended use for the new property, it’s important to plan. This allows you to seamlessly address any challenges and ultimately make the best decisions for your real estate business.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.