Roadblocks to closing the sale
Julie Garton-Good, GRI, DREI

LOAN BALANCE CHANGES

Q:Two weeks before closing, the seller notified us that his assumable loan requires $7,000 more to assume it than we thought -- and than we have. What options do we have since we really want the house?

A:Here are several suggestions:

(1) You could ask the seller to carry back a second mortgage for the $7,000 difference especially since he made the error in the assumption amount. Perhaps you could make minimal payments with a balloon payment sometime in the future.

(2) Perhaps some of the closing costs could be renegotiated so that the seller pays more. These could include assumption fees, closing fees and so on. This could slightly reduce the amount of cash you would need to bring to closing, but won't be enough to solve the entire problem.

(3) If your offer was written conditioned upon "assuming an existing loan of approximately $______", you might ask the seller to come down a bit on the price. Your attorney could tell you whether you'd still be obligated to buy if the loan amount was radically lower than what the seller represented.

(4) Perhaps you could use a combination of these alternatives. For example, if the seller would lower the price to meet half of the $7,000 difference ($3,500) and then carry the remaining $3,500 on a second mortgage, you could bridge the gap and the sale could close.

SHORT ON CASH FOR CLOSING

Q:I need another $400 to cover my closing costs and there's no more room to negotiate with the seller. How can I find more cash in the next two weeks?

A:You may be able to shave dollars off the money you need by closing the loan at the end of the month instead of in the middle.

Here's why: Interest is paid in arrears on a mortgage; so the lender must charge you the interest at closing to cover the days between your closing date and the end of the month. For example, if you're closing on August 15, you'd be charged interest from that date through August 31. Then you'd skip a payment in September (since you'll be paying interest in arrears on your loan) and your first official payment would be due on October 1.

This means that you'll pay less prepaid interest by closing late in the month (that's why most loans close then). And since most lenders use 15 days worth of interest when estimating your closing costs at time of loan application, you may not need as much for closing costs as your Good Faith estimate shows.

Before you panic, contact the lender (and the seller) to see if there's any harm in changing the closing date. Then get an exact (or pretty close to it) figure of what you'll need to bring in for closing.

Don't forget that any earnest money you paid will also be applied at closing.

TITLE INSURANCE

Q:We are paying cash for a home where the seller has agreed to make repairs prior to closing and we want to safeguard against problems cropping up after we move in. What can we do?

A:There are several steps you can take, but they must be in place before closing.

First, have the seller agree that funds should be held back at closing until all final inspections can be made. Typically, one and one-half times to two times the highest estimate of the repairs is a reasonable amount. (Don't forget to have the purchase agreement amended or an addendum added to spell out exactly what you decide, including the quality of the finished product and what will happen if the funds are short to pay the expense).

Second, make sure that all contractors and material suppliers are paid. This can be handled by the closing attorney; but make sure that he or she knows well before closing that it may be a concern.

You don't mention title insurance, but this is very important especially since repairs have occurred on the property. The title officer can counsel you about types of extended policies that might suit your needs.

A SECOND APPRAISAL

Q:It's taken forever for the sale of our property to close. Now the lender is calling for a second appraisal before closing. Why?

A:I can only guess that it's been six months or more since the original appraisal was done. In today's market where values are fluctuating, it is in the lender's best interest (as well as the borrower's) to make sure that there is adequate collateral in the property before making the loan.

The appraisal request could also be made by the private mortgage insurance (PMI) company. They insure the lender against the borrower's default, usually on the top 20 percent of the loan. If the first appraisal is old, or if the PMI company has questions about the value of the property or its neighborhood, they could request a second appraisal.

UNEXPECTED CHARGES AT CLOSING

Q:There were several hundred dollars of extra warehousing fees and prep fees on our closing statement that didn't appear before on the Good Faith Estimate. We needed to move that day, so we closed -- but we'll never recommend that lender again.

A:I don't blame you. One reason behind the mandatory Good Faith Estimate is to prevent major financial surprises at closing.

While the figure given to you at loan application is just an estimate, several hundreds of dollars might be excessive (especially when the excess was for fees typically controlled by the lender).

You did not have to close the loan until the fees were explained to your satisfaction or otherwise ironed out. That was your choice as a buyer since alterations are much more difficult (if not impossible) to make once the ink is dry on the paperwork.