Exchange to closing: how long does it take, and what can go wrong?
Buying a home should be an exciting time in your life. However, the time between making an offer, entering escrow, and closing the deal can be time-consuming.
When you exchange contracts, an escrow will aid this process and release the funds to the seller.
Unlike in the UK, you pay the down payment upfront and reach mutual acceptance (signing a legally binding contract) much earlier.
While you can back out, this is based on certain contingencies that should be in the contract (for example, finding a major issue in the house inspection).
Some circumstances can hold up your journey toward closing. Here we look at the potential obstacles and how you can prepare to close on your new home without delay and hassle.
How long should the process take?
Getting from escrow to closing the deal can often take several weeks to complete.
There are plenty of things you can do to try and speed things up, but at the very least, it makes sense to be as organized as possible with all the right paperwork to hand.
Answer queries from your realtor, mortgage broker or escrow company quickly and let them know if you are planning any vacations or if there are periods of time where you will be uncontactable.
When you exchange contracts, a closing date is agreed upon.
If you miss your closing date, the seller could charge you a per diem (a daily rate to cover extra costs), your earnest money deposit may be forfeited, you could face legal action from the seller or the deal can be canceled altogether.
If no one is in a hurry to move, you may be able to set a longer period before closing, giving you time to sort out your move, find the right removals firm, and change your contact information.
What can go wrong between exchange and closing?
Several issues can slow down or stop closing on a property, but it’s worth remembering that most deals go through without such hitches.
There’s no harm in knowing the potential pitfalls, though, so here we’ve listed some of the most common ones.
Your mortgage offer is withdrawn: this is not likely to happen, but if, for some reason, your lender withdraws your mortgage offer, progress to closing will stop. If you’re not too close to the closing date, it may be possible to arrange another loan, but if you’re too close to the big day, you won’t be able to.
You’re made redundant or lose your job: if you’re made redundant after you’ve exchanged contracts, you must let your mortgage lender know. Your main priority will be finding a new job, as there is a risk that you’ll lose your downpayment and have to pay further costs. If you’re using a mortgage broker, let them know what’s happened and get advice on what to do next.
You get involved in a dispute with your seller: problems may arise that weren’t spotted before contracts were exchanged. Perhaps some important information was concealed, or questions were not answered correctly. Disagreement over the purchase price can also obstruct closing.
Your seller goes bankrupt: here’s another potential hazard, particularly if you’re trying to buy a property from someone in financial difficulty. If this happens to your seller, discussing the legal position and options with your realtor is vital.
The sales chain breaks: when buying a property, there will probably be several linked deals, which all depend on each other for smooth progress. Your closing can be slowed by a problem further up this chain – perhaps a buyer has their mortgage offer revoked – and you could find yourself in breach of contract through no fault of your own. Always get professional advice if there’s a problem within your chain.
Problems on closing day: there are a few hazards to bear in mind on the day of closing. For example, there might be a delay in the transfer of payment. If your seller hasn’t received the funds, you can’t close on the property.
How can you help to ensure you close on your property?
The chances are you won’t encounter any of the major difficulties we’ve discussed above, but to make sure your move proceeds at a pace that suits you, there are several things you should do.
Plan ahead: before starting your search for a property, get pre-approved for a loan. Also, choose an escrow company as soon as possible.
Sort your documentation: it’s important to have the right documents to hand, and you should be supplied with various documentation on the property, which you should keep in a safe place.
Be communicative and efficient: ensure everyone has all the information they need to proceed and always respond promptly to queries.
You must not delay if issues, such as with property inspection results, need resolving. Good communication and accurate information will make the exchange to closing period less stressful.
If you’re buying a home or starting the process, a financial advisor can help you develop a plan that works for your finances. Unbiased can match you with your perfect financial professional. Get started today.
Senior Content Writer
Lisa-Marie Voneshen is a Senior Content Writer at Unbiased. She is an award-winning journalist with nearly a decade of experience writing and editing content across various areas, including personal finance and investing.