Buying a home is never an easy thing to do — it is a complicated process that requires careful planning and execution. It is rarely a smooth ride, especially towards the end of the process.
Before you finally take possession of your new house, you and your seller undergo a settlement period after you sign the contract. A settlement period typically lasts for 30 to 90 days. Within that period, you are expected to finalize your financing, conduct one final property inspection, and analyse the contract of sale.
The settlement period leads to the settlement day, the day when you and your seller meet for one last time to officially transfer the property to your name. Just like any event, however, there are unforeseen circumstances that could delay the settlement.
Common reasons of buyer-triggered delays
Either party can be at fault for a settlement day adjustments, but here are some of the instances where the buyer is responsible for the delay:
1. Bank issues
You might cause a delay if you are having issues with your bank. Banks do not give the green light for a home-loan application overnight — they need time to analyse your financial capacity to service the loan. If your bank has yet to issue an approval for your home loan by the time of the settlement date, you have no choice but to delay.
Bank issues might also be caused by inaccurate information. A minor correction that you need in one of the documents you provided your bank can push back your settlement date for a week or more.
2. Final Inspection Concerns
The settlement period is the perfect time for buyers to do a final check on the conditions of the property. Requesting that your seller repair a faulty wiring system or a malfunctioning garage door will certainly push the settlement date until the issues you found during the final inspection are resolved.
3. Delays in other property transactions
Some buyers depend on the sale of one property to fund the purchase of another. If you solely depend on the sale of your current property to purchase a new one, then a delay on your first transaction will ultimately impede the progress of your new home purchase.
4. Late documentation
Being tardy in submitting pertinent legal documents, either to relevant government bodies or to financial institutions, might take a considerable amount of time, eventually delaying your settlement.
5. Other commitments
Your presence is not required during the settlement date. You can send in your settlement agent to do the work for you. However, some unavoidable personal commitments might hinder you from preparing everything for your agent. In such cases, you are left with no available options but to delay the settlement.
What happens when you delay the settlement
If you are the cause of the delay, whatever your seller decides to do should be included in the contract. Here are some of the most typical consequences you have to face if you are at fault:
1. Your seller can give you a grace period
In some states, the seller might be able to give you leeway if you are unable to meet all the requirements needed prior to the settlement day. A three-day grace period is usually given to erring buyers, allowing them to settle what needs to be done for the purchase to continue.
2. You can be charged with penalty interest
If you are still unable to fulfil the tasks on your end after the grace period lapses, your seller can now start imposing penalty interest for each day that you delay settlement. The rate of the interest depends on what is agreed upon in the contract.
3. The seller might call off the deal and keep your deposit
Your inability to settle might push your seller to terminate the contract. In some states, your seller has the right to keep your deposit if you are unable to settle.
How to reduce chances of the settlement being delayed
There is one secret to avoid all the fuss of having the settlement delayed: being organised. This applies to every step of your home purchase, from home-loan application to filing the necessary documents to government institutions.
It also pays to have open communication lines with your seller and your agent. Keep everyone in the loop to ensure that important news is disseminated across all parties involved.
You should also keep everything professional — comply with what is agreed upon between you and your seller and negotiate if needed. Do not just do things out of haste. Show respect to the other party to earn the same.
Lastly, seek the help of the right team of professionals, from choosing a mortgage broker to hiring a settlement agent. You can really use a little help from these professionals to keep the buying process as smooth and as convenient as possible.