Once all the home inspection reports are completed, negotiations are done, and a real estate transaction moves on to pending, your title or escrow company will usually call for final signing. This is where the sellers come in first apart from the buyers and sign all of the final closing documents. After this is complete, the buyer will then come in and sign their part of the documents. Buyers and/or sellers can both be required to bring money to the closing table but what if either party doesn't have enough?
If the buyer doesn't have enough money to close.
If your lender calls saying that you don't have enough money to close, it's time to go back to your lender and figure out what went wrong or if you yourself have spent the money that was otherwise designed to go for closing.
Most of the time buyers have already paid a part of their down payment as earnest money. This is typically between 1% and 3% of the purchase of the property. That will go as part of the down payment towards your home, which most buyers have already paid. Earnest money is counted as a credit during closing. If you realize there is more money that you need to bring to the table, the best option is to go over the numbers with the lender and see where you are short or if they have made an error. Lenders should keep the buyers in the loop throughout the entire process telling them how much still need for closing, not to make any large purchases or do anything that could disrupt their credit history or report, and verify that they have enough money at closing. As a buyer, it's important to find out where you are short. If the contract only specifies closing costs, and the seller is responsible for prepaid's, the buyer could be short funds for closing. Of course, the seller will want this to close just as much as the buyer so it may also behoove the buyer to go back to the seller and ask for additional closing costs. This is not going to be taken gratefully, however, but it is a way to potentially close the deal.
If the lender has misinformed the buyer throughout the process on how much they will need to bring it closing, this could be an issue on the lender's side. Lenders are required to give buyers a good faith estimate so they know every stitch of fees and costs involved in the transaction.
If the seller cannot bring money to the closing table.
Although it is usually the buyer that is responsible for paying closing costs, sometimes the sellers can pitch in. For instance, in a VA loan or a short sale, sellers will need to bring money to the table if they're selling the home for less than what is currently owed. If the seller doesn't have enough money to pay, this could go into the buyer's responsibility or termination of the entire deal. If the seller has certain unpaid liens, these will need to be taken care of first and closing costs can include that.
There are a variety of fees and costs involved in completing a real estate transaction. The higher the fees, the more they cut into the profits of a seller. If the seller owes more on their mortgage in the amount they receive from the sale, they can borrow money from a variety of different sources. At this point, many lenders and agents don't really care where the money comes from as long as the seller or buyer completes the closing costs requirements.
Again, all of these figures should have been dealt with before the closing table. It is important to find a letter that keeps the buyer and the seller well informed about the entire process and the buyers understand exactly how much they need to bring to the table in order to close the deal.
If you've got to a point where you realize you need to bring more money to the closing table than expected, immediately call your agent and your lender to find out if they are at fault or if you have miscalculated.
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