7 Costs of Delayed Closing and How to Avoid Them
When you find your dream home, make an offer, and have that offer accepted by the seller, you’ll be ready to enter the final step of the homebuying process – closing.
- You could pay a fee every day past the agreed upon closing date
- Loss of earnest money deposit
- The seller backs out of the deal
- The seller takes legal action against you
- You still have to pay for your title insurance policy
- Mortgage rates could increase
- Your credit score can go down
- Additional Resources
While closing is just one step along the road to homeownership, it involves quite a few moving pieces including obtaining homeowner’s and title insurance, a final walkthrough of the property to ensure the seller has completed any required fixes resulting from the inspection, a review of the Closing Disclosure to make sure you understand the terms of your loan, and the official transfer of property.
As you can imagine, it’s not uncommon for homebuyers to experience delays related to the various aspects of the closing process, but these delays can be both frustrating and costly. All too often, a closing is delayed because a homebuyer chooses the wrong lender. Your lender will be working with an underwriter to secure financing for your next home, and unfortunately, financing falls apart altogether during underwriting 9% of the time.
That’s why choosing a lender who can help you make your strongest offer confidently and close quickly is one of the most important decisions you can make when buying a home. Outlined below are some of the common costs of a delayed closing for homebuyers as well as important advice on how to avoid them.
1. You could pay a fee every day past the agreed upon closing date
Once the closing date that you agreed on with the seller has passed, they can choose to extend the closing deadline but in doing so charge you a daily rate (or “per diem”) to help cover costs related to additional mortgage, tax, and insurance payments they have to make as a result of the postponed closing.
2. Loss of earnest money deposit
Think of your earnest money deposit as a security deposit for the seller – it’s a show of good faith that you have the money needed to purchase their home. In most cases, the buyer’s earnest money deposit is returned at closing, but in the case of a delayed closing where the buyer is at fault the deposit can be relinquished to the seller for the inconvenience.
3. The seller backs out of the deal
If there is a delay in closing where the buyer is at fault, the seller may be able to back out of the sale. While this is not a common occurrence because the seller would need to start at square one and find a new buyer, it can happen if the seller believes they can find a buyer who can make a better offer and close without delays. It goes without saying that this outcome can prove costly in terms of time and money for the buyer.
4. The seller takes legal action against you
When you miss a closing date as a buyer, technically you are in breach of contract and the seller could take legal action against you including your being mandated to reimburse them for mortgage, taxes, insurance, or other costs they may have incurred because of the delayed closing.
5. You still have to pay for your title insurance policy
As mentioned above, one step of the closing process for homebuyers is obtaining title insurance as protection against any unexpected claims after you’ve officially purchased a home. If you don’t close on time as a buyer, you risk your title insurance policy becoming void and losing the money you spent on the policy.
6. Mortgage rates could increase
If you fail to close on time, the rate lock you obtained could expire and in the interim mortgage rates could have increased meaning you would end up paying more money over the life of your loan. Especially with rates on the rise, it’s important to make sure you close on schedule, so you don’t end up with a higher rate.
7. Your credit score can go down
If you’re unable to close on time, your credit score can be negatively impacted which in turn can hurt your opportunity to buy another home or even prevent you from being able to do so altogether. And totally unrelated to the homebuying process, there are numerous negative side effects of a bad credit score including insurance premiums going up, missing out on career opportunities, being required to pay deposits for utilities, and more.
It goes without saying that missing a home closing deadline as a buyer can be costly. So the important question is how can you avoid a delayed closing so you don’t suffer any of the consequences listed above? To set yourself up for success, it’s important to be able to close decisively with your best offer when you find your dream home.
With Leader Bank’s Purchase Pass 10-day closing guarantee you’ll be ready to make your strongest offer confidently and close quickly to ensure you don’t fall victim to any of the costly outcomes of a delayed closing.
Our dedicated team of Loan Officers are ready to help you make your most competitive offer so you’re ready to close quickly and confidently on your next home with two key tools:
- Upfront Commitment: Strengthen your offer with a fully underwritten commitment letter subject only to the review of a future property so sellers know that your loan is as good as funded.
- 10-Day Closing Guarantee: Enjoy a stress-free closing in as little as 10 business days of receipt of your signed Purchase and Sale Agreement; backed by a $500 credit towards your closing costs.*
- First-Time Homebuyers – From first time homebuyer seminars to specialized programs designed to make the dream of homeownership a reality, Leader Bank has a range of resources available to help you throughout this process.
- What Mortgage Type Makes Sense for You? – With interest rates fluctuating, we take a look at the comparison between Fixed-Rate and Adjustable-Rate Mortgages (ARMs).
- Top Things Not To Do When Applying for a Mortgage – When you’re starting your homebuying journey, the pressure of qualifying can be intimidating. However, there are things you can control throughout the process to increase your chances for qualifying and avoiding potential pitfalls.
- Home Equity Line of Credit (HELOC) vs. Refinancing: Which is Better for You? Homeownership is likely one of the biggest investments you’ll make in your life, and one of the questions that comes along with this investment is how you can take advantage of your home’s equity as time passes.
- Explore The Loan Process – We’ve designed our site to make it easy for you.
*Subject to borrower’s satisfactory completion of the Purchase Pass program and receipt of an approved Purchase Pass Commitment Letter. Credit approval required. Rate Lock agreement will be required to determine final interest rates and monthly payment. Commitment to close within 10 business days requires (a) Leader Bank’s review and acceptance of a valuation of the chosen property; (b) the ability of the Bank to obtain a clear title commitment and title insurance for a mortgage secured by the property, (c) borrower’s purchase of satisfactory insurance relating to the property as may be required and (d) satisfaction of all other conditions in the final Commitment Letter issued. 10-day closing offer available only for properties in Massachusetts, Connecticut, and Rhode Island. Eligible borrowers will only receive $500 credit towards closing costs if both (a) the closing date in the purchase and sale agreement is set within 10 business days of Leader Bank’s receipt of the signed agreement and (b) neither borrower nor seller request and receives an extension to the closing date beyond this 10 business day deadline.