Inspection, Appraisal and Underwriting: Clearing Contingencies Before Closing

When the seller accepts your offer, the clock starts on each contingency in your contract. The inspection deadline is often the shortest, followed by the appraisal and then financing, but the order and length are whatever your contract says. Four tracks run in parallel:

• Inspection: is the home in the condition you expected?
• Appraisal: is it worth the price, for the lender's purposes?
• Underwriting: will the lender give final approval of your loan?
• Title and insurance: can the seller deliver clear ownership, and can you insure the home?

Contracts handle deadlines in different ways. Some require you to remove each contingency actively, in writing; others treat a contingency as satisfied if you do nothing before it expires. In some places the seller can send a notice demanding that you act on a contingency within a short period. Which approach applies depends on your state's standard forms and your contract, so ask your agent or attorney at the outset.

Once a deadline passes or you release a contingency, you generally lose the right to cancel for that reason without putting your earnest money at risk.

Book a home inspection as soon as you are under contract. Inspectors' calendars fill up, and you need the report early enough to arrange follow-up inspections and still respond before the deadline. Licensing of inspectors varies by state, so ask about credentials, sample reports and insurance.

A general inspection is a visual review of the accessible parts of the home: roof, structure, foundation, electrical, plumbing, heating and cooling, attic, insulation and major built-in appliances. It does not open walls, move furniture or test everything. Where the inspector finds concerns, the report will recommend specialists. Depending on the home and the area, common additions include:

• A sewer line camera inspection, especially for older homes or lots with mature trees.
• A wood-destroying insect inspection, which some loan programs or states require.
• Roof, structural engineer, chimney or heating and cooling evaluations.
• Radon, mold, lead-based paint, well or septic testing, where relevant.

Attend if you can, and ask the inspector to show you anything significant. Then read the full report, not just the summary, alongside the seller's disclosures. Check whether major work such as additions or finished basements was permitted; the local building department can often tell you.

With the report in hand, decide whether to proceed, ask for a remedy or cancel. How to sort the findings and request repairs, a credit or a lower price is covered in making an offer and negotiating.

If you are financing, your lender orders an appraisal from an independent appraiser. You usually pay for it, upfront or at closing, but you cannot choose the appraiser or press them for a particular value. The appraiser inspects the home, reviews recent comparable sales and gives an opinion of market value as of that date.

Lenders lend against the lower of the price or the appraised value. That figure sets your loan-to-value ratio, which affects your down payment, mortgage insurance and sometimes your rate. FHA and VA appraisals also check minimum property standards, so problems such as peeling paint in an older home, missing handrails or a broken heating system may need fixing before the loan can close.

If the appraisal comes in below the contract price, you have several options:

In some cases a lender may waive the appraisal or use an alternative valuation, depending on the loan program and property. That saves time but leaves you without an independent check of value.

Underwriting is where your pre-approval becomes a final loan decision. The underwriter re-verifies your income, assets, debts and credit, reviews the appraisal and title, and checks that the loan meets the program's rules. The result is often a conditional approval: a list of items the lender still needs before it will fund. Some lenders also run a final employment verification or a fresh credit check in the last days before closing.

Typical conditions include:

• Updated pay stubs or bank statements, because the originals have aged.
• Letters of explanation for credit inquiries, gaps in employment or large deposits.
• Documentation of a gift, the sale of another property or the payoff of a debt.
• Proof of homeowners insurance and, where required, flood insurance.
• Repairs or certifications required by the appraisal.

Answer each request completely and quickly; slow responses to conditions are a common reason closing dates slip. Keep your finances steady while this happens, for the reasons explained in how to get pre-approved for a mortgage.

Check your rate lock date against your expected closing date. If underwriting runs long and the lock expires, extending it may cost money, so raise any risk of delay early.

While the inspection and appraisal proceed, the title or escrow company runs a title search and issues a title commitment. It shows who owns the property, any liens and judgments that must be paid off at closing, and exceptions such as easements or restrictions that will stay with the property. Read the exceptions and ask about anything you do not understand; the guide to title, liens and due diligence explains what to look for.

Start shopping for homeowners insurance as soon as you are under contract. In some areas coverage can be costly or hard to find because of wildfire, wind, hail or flood risk, and an insurer may ask for details from the inspection, such as the age of the roof. If the home is in a designated flood zone, your lender will require flood insurance. Discovering late that a home is expensive to insure can upset your budget after your contingencies have expired.

As each check comes back, you either remove the contingency, negotiate an amendment or cancel. Keep copies of every signed notice, release and amendment, and confirm with your agent which deadlines remain.

Pay particular attention to the financing contingency. Its deadline may arrive before the lender has issued final approval. If it does, you face a choice between removing the contingency on the strength of a conditional approval, asking for an extension or cancelling. Ask your loan officer which conditions remain and how likely they are to be met before you decide.

If you do cancel, follow the contract's notice procedure exactly, in writing and before the deadline, and ask the escrow holder how your earnest money will be released. Holders often need signed instructions from both buyer and seller before they return a deposit.

When every condition is satisfied, the lender issues a clear to close and prepares your Closing Disclosure. From there, closing day: what to expect covers the review period, final walkthrough and signing, and closing and recording a property purchase explains how ownership is transferred and recorded.