So the seller has accepted your offer and agreed to sell the house. But you still need to overcome many hurdles before the property becomes yours. In this article we will take a look at the common problems that buyers may experience during the escrow period.
1. Extensive damage is revealed during a termite inspection
Your lender will usually have a pest inspection done on the property. Of course, you will have to bear the expense, but that is not the issue here. This routine inspection is done to ensure that the property doesn’t suffer from extensive termite problems. If you discover a termite problem after moving in, you can abandon the property. If that happens, the lender will lose the money. If the inspection reveals extensive infestation, the problem will need to be fixed before you can proceed with the transaction.
2. The appraisal value is too low
The lender will get the property valued again. They want to make sure that the house is worth at least as much as you are willing to pay. If the appraisal value is too low, the bank may ask the seller to lower the price. Otherwise, you will need to pay the difference amount.
3. There are third party claims on the property
During the routine escrow process, you have to do a little title search. This is necessary to ensure that nobody else has any legal right to the house you are going to buy. You will also need to get title insurance. It will protect you against any claims that might arise in the future. If there is a claim against the house, the seller will need to resolve it before proceeding any further.
4. Major defects are detected during the home inspection
Purchase offers usually come with an inspection contingency. This is necessary to protect the interests of the buyer. If serious problems are detected during a home inspection, you can walk away without penalty. However, if you didn’t get this contingency clause written into your purchase agreement, you might lose your money.
5. You want to back out
The purchase contract will usually outline reasons that allow the seller or the buyer to back out without paying penalty. That said, if you decide to back out for reasons other than those specified in the contract, you will lose money.
6. The lender refuses to finance the transaction
Intelligent buyers will get a home loan preapproved before making offers on a property. However, even after preapproving your loan, the bank can refuse to disburse the loan amount. For example, this could happen if you lose your job or your credit worthiness goes down.
7. The property faces threat from natural calamities
Some states require a disclosure of natural hazards. If, during the escrow procedure, you discover that the area where the property is located faces threat from natural disasters, you will need to purchase hazard insurance. This can be costly.
8. The insurance company refuses to insure the home
The previous owner of the property may have made a huge claim on it. In this case, the insurance company might refuse to insure the house because they suspect that the new owner will also make such claims in the future. If the house is not insurable, the lender will not finance the purchase. Of course this is not an issue if you are a cash buyer. Still, buying a property without insurance isn’t advisable.
Make sure you overcome all these hurdles before you sign the deal.
Before you buy, be sure to consider the advantages of knowing the true value of a particular home. You can obtain a free home valuation report from Neighborhood IQ to find out how much a property is worth before you sign on the dotted line. Also, the Home Loan Advisor can analyze your property, current market conditions, local market comps, and other variables in our proprietary algorithm, and match you with potential lenders.