Going through the process of a buying a home these days can often feel like you’re running a race—without knowing when or even if you’ll reach the finish line. Understandably, borrowers become frustrated when they run into what are all-too-common mortgage delays. While knowing about the potential for problems can’t always prevent them from occurring, it can help to understand the common mortgage issues and delays you may face so you’re aren’t blindsided when they occur. What’s more, knowing what to do when one of these common mortgage delays arises can help you tackle it quickly so you can continue to move through the process. Sometimes, you can even prevent mortgage delays from ever occurring in the first place.

Today, our post will follow a Q&A format as we address a few of the most often-cited difficulties borrowers run into, explain why they occur, and offer advice for dealing with them.

1. The home I want to buy was appraised at less than the amount I’m planning to borrow. Now what?

A key step in the home-buying process is the appraisal, which the lender will use to determine what the home is worth. If an appraisal comes in lower than the total loan amount, this could definitely cause delays in the closing process. For example, you offered the seller $300,000 on his home, which he accepted. You put 10%, or $30,000, down to purchase the property. Unfortunately, the home appraises only at $250,000, which is $20,000 less than you’d planned to borrow. The bank doesn’t want to loan you more than the home is worth in case it needs to foreclose. If that happens, it may not be able to sell recoup the cash it lent you to buy it.

A key step in the home-buying process is the appraisal, which the lender will use to determine what the home is worth. If an appraisal comes in lower than the total loan amount, this could definitely cause delays in the closing process. For example, you offered the seller $300,000 on his home, which he accepted. You put 10%, or $30,000, down to purchase the property. Unfortunately, the home appraises only at $250,000, which is $20,000 less than you’d planned to borrow. The bank doesn’t want to loan you more than the home is worth in case it needs to foreclose. If that happens, it may not be able to sell recoup the cash it lent you to buy it.

How did this happen? Too-low appraisals, which can certainly delay the closing process, can happen for several reasons:

• House is being sold in slow housing market in which inventory is high and demand is low
• Multiple buyers artificially drove up the price via a “bidding war”
• Seller overpriced the home
• Appraisal was inaccurate
• No or too few comparable sales, which help an appraiser accurately gauge a home’s worth

Once this occurs, you have a few options. First, you could walk away from the deal, painful as that might be. However, if you truly feel the appraisal is incorrect, you could ask the lender for another appraisal. It’s up to the lender whether to honor your request, though, so you’ll need to be able to present the facts related to why you think the initial appraisal was too low.

Or, if you’re confident the appraisal is accurate, you could scrape together more cash for the down payment so you can close the gap between the borrowed amount and the appraisal amount. One way to do that is to ask your lender to help you out with closing costs.

The other alternative is to ask the seller to come down on price. Whether he or she does so will depend on a number of factors, such as the state of the market, whether there are other buyers, and how quickly the seller wants to offload the property.

2) The title search uncovered a lien on the home I’m buying. Now what?

Before you can close on your new home, your lender will require that you hire a title firm to perform a title search on the property. The title company will undertake a research process that identifies any issues that might affect the property’s title, such as a lien, a claim on the land, survey issues, and public-record errors.

If there is a lien on the home you’re hoping to buy, this means that a prior owner didn’t pay his or her bills, and because of it, one (or more) of the companies that were owed money placed a lien on the property. It’s a way of laying claim to the land and preventing its sale until that company gets paid. If you’re purchasing a distressed property, such as a foreclosed home, there is a much higher likelihood that you’ll encounter this type of issue, so be aware of that going in.

What happens if a lien is discovered? You’ll need to decide whether to pay off the lien so you can purchase the home. Alternatively, you can try to get the seller to pay it off, or you can offer split the cost. Either way, expect the process to turn into a lengthier one. Title issues can delay the closing for weeks or even months.

Even though this is an undeniably frustrating process—it’s an absolutely necessary to do be aware of what you’re buying. It’s critical that you hire a reputable title agency to perform a thorough search. Once any title issues have been uncovered and corrected, you’ll then need to purchase title insurance from the same company. This is an affordable policy that insures you against any undiscovered issues. If a survey issue or other problem is uncovered years later and dates back to before you bought the property, your insurance will pay out to remediate the situation.

Help! We’re closing today, but we found a problem during the walk-through. Now what?

Closing Day has finally arrived! You’re excited that, after encountering many mortgage delays, you’re finally going to buy your new home today. That is, until you visit the property for your final walk-through (a visual inspection you undertake with your real-estate agent to ensure there are no new or previously overlooked problems). While you’re there, you might notice a leaky basement, hole in the drywall, or a tree that’s fallen in the yard. As every homeowner knows, homes have a way of developing problems at some pretty inopportune times!

Even if nothing is broken or damaged, the potential for mortgage delays still exists. You might find belongings, furniture, or garbage left behind by the previous occupants, or discover that the place has been left in a filthy state (it should be left “broom-clean” by the sellers in preparation for the sale.”

How can you keep these issues from delaying your closing? Knowledge is power here, so first you need to know the extent of the problem. Do your best to find out exactly what’s up—call in a favor and get a pro involved if possible. Have him or her write you a free estimate on the work that’s needed to get the home up to your expectations.

Time to Negotiate: Have your attorney reach out to the seller’s lawyer with the concerns, the estimate for repairs (if available), and the amount you’re requesting as a concession. Say, the tree will cost $500 to remove. You ask the seller to pay you $500 at closing to cover the cost. This way, you can still close on time, but you don’t have to shell out the extra cash. If you plan on doing the work yourself, it’s still reasonable to estimate the cost of the work and ask for cash.

If You and the Seller Can’t Agree: If you can’t agree on an amount or the problem can’t quickly be estimated, you may feel ill at ease about taking on a potentially huge problem you didn’t intend to sign up for. At this point, it’s up to you to decide whether to accept any seller concessions and move in anyway or hold off and let the seller take care of it. While the later will delay your long-anticipated closing, it’s often the wiser choice when you’re faced with potentially very complex or hard-to-manage issues, such as mold that’s found in one room of the house. Unfortunately, in some cases, the seller may simply refuse to do anything about the problem, period, in which case, you may need to walk away from the deal.

The Escrow Option: Another option would be to place a portion of the seller’s proceeds in escrow and use the money to deal with the problem. Usually the amount held in escrow is 1.5 times the cost of the estimated or anticipated repair (which gives the buyer confidence that if more is required to handle the repair, it’s easily accessible).
Unfortunately, these are just a few of the issues that can cause mortgage delays, so we’ll go over a few more during our next post. The good news is that by being properly prepared and knowing how to handle them, you can minimize or even avoid mortgage delays, making the home-buying process as stress-free as possible.