Given the current high interest rates in money markets, postponing the closure of your home escrow can be financially advantageous. Each additional day before closing translates into more interest income, potentially covering all your closing costs and more.
Consider buying a home with contingencies as obtaining a temporary, no-cost option. Prolonging the escrow enhances this benefit by providing extra time.
To clarify, let’s examine how extending the escrow period for a home purchase can be advantageous. We’ll explore various reasons for wanting to delay the escrow closure.
Offsetting Closing Costs by Postponing Escrow Closure Purchasing a home, even with cash, incurs several closing costs, including title, settlement, notary, and recording service fees. These, along with high commission rates, contribute to fewer real estate transactions.
For example, consider a home purchased for $1,750,000. The total closing fees for this buyer amount to $5,315.45. However, delaying escrow closure by a month can cover these costs.
Assume an all-cash payment for a $1,750,000 home, yielding a 5% annual return in a money market fund. An extra month in this fund would earn the homeowner $7,291, more than enough to cover the closing costs.
Even with a standard 20% down payment ($300,000), delaying escrow for a month would result in $1,250 in interest income.
Common Reasons for Delaying Escrow
Closure Other than earning extra income, here are more reasons to delay escrow closure:
- Unfinished lender underwriting requiring additional documents.
- Needing more time for home inspection contingencies due to damage or other issues.
- Appraisal discrepancies, potentially leading to renegotiations.
- Title complications, like past liens, that need resolution.
- Issues identified during the final walkthrough, potentially delaying closure.
Less Common Reasons to Extend Home Escrow Beyond the common reasons, there are less frequent circumstances where extending escrow may be beneficial:
- Challenges in obtaining affordable home insurance.
- Second-guessing the purchase decision.
- Waiting for specific ordered items, like Toto washlets, to be back in stock.
- Family emergencies requiring travel.
- Last-minute international work commitments.
- Delays in fund transfers or settling accounts.
- Timing the closure with furniture delivery or finding tenants for your current home.
Strategies to Extend the Home Closing Period
Convincing a seller to extend the closing period can be challenging, as sellers typically prefer prompt closures. However, there are tactful and less straightforward methods to achieve this. It’s crucial to maintain respectful communication with the seller and agent to avoid damaged reputations or legal complications.
Here are some strategies:
- Blame the lender: Use your relationship with your mortgage officer to delay document submission or extend your mortgage lock period.
- Slow your responses: Deliberately delay responding to communications to slow down the escrow process.
- Cite personal matters: Personal issues are generally off-limits for inquiry, making this a valid reason for delay.
- Offer a good faith deposit: Show commitment by sending a portion of the down payment to escrow.
- Wire addendum money: Compensate for the delay by wiring money for agreed-upon items directly to the seller.
Understanding the Seller’s Perspective
For sellers, any delay is preferable to a buyer backing out. Delays due to home inspection contingencies or other seller-related issues are understandable. However, excessive delays by the buyer might lead to a “notice to perform” letter, urging the buyer to fulfill their contractual duties or risk losing the earnest money deposit.
Maximizing Time Before Purchasing a Home
Feeling comfortable with the home purchase is essential to avoid buyer’s remorse. Sellers are usually open to extending escrow, particularly if the buyer is deep into the process. Simple requests for extensions are often granted, but for longer delays, offering a partial down payment or addendum money can help. Beyond a month, however, sellers might reconsider continuing escrow.
