How long does it take to close a mortgage?
The time it takes to close a mortgage varies with the type of mortgage, buyer/homeowner situations, and lender processing efficiency. A good rule of thumb, however, is to assume that a typical mortgage loan will take around four to six weeks to close from the application date. The most common key ingredient in this recipe is for you to have a completed application as soon as possible. Understand that certain loans may require a slightly longer period to reach closing.
When buying or refinancing a home, anxiety can come from a number of reasons. More often than not, it’s not knowing what to expect. A common example of one of the unknowns is the amount of time it takes to get a mortgage. Add to it the notion of relocating your family and all your earthly possessions, regardless of the time it takes, the process can seem like an eternity.
The average amount of time to close a mortgage
The average time to close a mortgage loan continues to hover around its lowest level in two years. According to Ellie Mae’s August 2020 Origination Report, the average time to get from application to closing dropped is 49 days.
Largely due to the real estate market as well as the lending institution, this can easily extend to a month and a half, even two months.
For example, in a normal market, many lenders are averaging just 30 days. Larger banks and credit unions, on the other hand, will often take longer than your average mortgage lender.
To an anxious home buyer, even a short 30-day turnaround can seem like an eternity.
The key to estimating a closing date is the day your application is complete. Simply submitting a mortgage application (Form 1003) is insufficient. When you submit an application, be sure it is accompanied by income verification — at least two recent pay stubs and the past two years’ W-2s or 1099s — along with any other documentation your lender requests. Often, they’ll want bank statements — up to six months — from your primary financial institutions, proof of down payment cash, purchase agreement and a letter of explanation (LOE) for any negative entries on your credit report.
Why does it take so long to close my loan?
Generally, there isn’t just one answer to why your mortgage application is taking longer than your neighbour’s. Everyone’s situation is different. There are a number of common explanations that can cause a longer time to process your application.
New government-imposed mortgage rules
In 2014, new regulations were set in place by the Consumer Financial Protection Bureau (CFPB). These new rules significantly affected the way mortgage lenders originate home loans. It takes lenders longer to document and verify a homeowner’s ability to repay the loan.
Pre-housing crisis, mortgage lenders had much more flexibility when it came to getting an appraisal completed. But appraisal standards changed significantly on a number of levels. Nowadays, appraisal management companies follow stringent guidelines. This further delays an already time-consuming process.
Many homeowners don’t know everything that goes into obtaining a mortgage. Procedures such as making sure there’s a “clear title” to the property are important aspects of getting your loan closed. If there’s any judgments or liens on the property, these need to be cleared up before you can close. Unfortunately, this isn’t always a quick fix.
Although underwriters have shown significant signs of loosening up in recent years, homeowners still go through a number of screening processes. The underwriting process can be intense. Underwriters will often request additional documentation based on the initial documentation presented. Even the most seasoned loan originators can’t always anticipate the items a stringent underwriter will require.
How Have Closing Times Changed Over Time?
As of February 2019, closing times have maintained a tight range of 42 to 48 days averaged across all loan types over the past 18 months. This indicates that despite seasonal market fluctuations and shifting housing trends, it takes approximately six to seven weeks to close on a mortgage loan.
Improvements in underwriting procedures combined with a shift to digitized mortgage lending have sped up closing times on average. However, while many online lenders boast expedited closing times, your experience may vary widely depending on your financial profile as well as the capabilities and capacity of your chosen lender.
Ways to speed up your mortgage closing
There are several things you can do to help speed up the closing process. As a general rule, it pays to be prepared and timely.
Before you’re even under contract on the property, get preapproved by your lender by providing them with your income, asset, and credit information. In order to issue a preapproval letter, your lender will have to pull your credit report, calculate your debt-to-income ratio, and verify your assets available for the down payment.
Getting this done in advance saves some time once your offer is accepted and adds to the likelihood that your loan is likely to be approved. It’s a good idea to get preapproved across multiple lenders at this stage to make sure you’re getting the best mortgage rate.
Respond to all lender requests quickly and provide complete documentation.
By providing all documentation as quickly and completely as possible, you can help keep the process moving. The borrowers often end up delaying the closing when they don’t pay attention to emails or calls.
It’s a good idea to respond quickly if the lender asks you to sign disclosures, return requested documentation, or acknowledge time-sensitive documents like the Closing Disclosure so that mandatory waiting periods can begin. This will require some extra diligence on your part.
Choose a digitized mortgage process.
Choosing a mortgage lender who offers an online or digital mortgage process can also help speed up the process by leveraging technology to prepare documents and disclosures.
Digitized mortgage lenders can complete electronic signatures and even underwrite loan applications according to Fannie Mae or Freddie Mac guidelines. While there’s no guarantee that other parts of the loan process will move as quickly, a commitment to boosting efficiency via technology can be a good indicator of a company’s ability to close your loan quickly.
Obstacles along the way
Credit problems don’t just make you pay higher mortgage interest rates. They can also cause a significant slowdown in the approval process, especially if you have accounts that are in dispute.
Say you check your three credit reports — one each maintained by the three national credit bureaus of TransUnion, Equifax, and Experian – before you apply for your loan and notice that one report lists that you were late on three credit-card payments with two different providers. You don’t think this is true, so you file a dispute with the credit bureau.
This account will show up on your credit report as being in dispute until the issue is resolved. Lenders won’t proceed with approval until the “dispute” tag is removed, either because the bureau finds in your favor or it rules in favor of your creditor. And once the dispute is resolved, your lender will run your credit again to make sure that the resolution of the dispute hasn’t lowered your three-digit credit score.
This all takes time and can muck up the approval process.
Missing paperwork is another common reason for a slowdown. Say your lender asks for two years of tax returns and you only provide one. Your lender isn’t going to forget this request. Instead, it will ask you for that missing year of tax-return information.
And until you provide it? The underwriting process will stall.
Don’t ignore requests for paperwork. Lenders only ask for the documents they absolutely need to verify that you have enough money to afford your monthly mortgage payment. Ignoring requests for paperwork won’t make the requests disappear. It will only drag out your approval.
Any payday loan you’ve had over the last 6 years will be listed on your file, even if you’ve paid it off on time. It could still count against you as lenders might think you won’t be able to cope with the financial responsibility of having a mortgage. The impact of having a payday loan will still differ from lender to lender.
Other things you can do make your mortgage process go faster
To get qualified, the first step is to have your credit checked. Request a copy of your credit report and clear up any discrepancies to improve your chances of getting approved.
Lenders will need to verify a full two years of employment history. If you’ve had several jobs in the last couple of years, this isn’t an automatic deal-breaker, but it can cause delays if you don’t have all of the details. You can get ahead by having all of the contact info and dates available to your lender.
There will always be some areas that are out of your control when it comes to getting a mortgage loan. Just knowing this fact can bring some peace of mind. But being proactive and staying ahead of the process can help ensure a faster and smoother closing.
To make the mortgage process smooth, organize all of your paperwork before you submit your loan application. Having your pay stubs, tax returns, W-2s, bank and brokerage account statements and loan statements ready to go can give you a head start.
In sum, there is no definitive timetable to process your mortgage. We recommend that applicants add at least a week to how long the lender says it will take to close your loan. When it comes to getting a mortgage you should expect the unexpected as delays frequently arise. Building an extra cushion into your timetable can help you manage and close your mortgage on time.