The good news is the housing market is doing well, resulting in more home purchases and home loan applications. However, with more activity comes more delays.
Mortgage software company Ellie Mae reported in their most recent Origination Insight Report that home loan closings are taking seven days longer than they did last year at this time.
Ellie Mae tracks more than 2 million loan applications per year through its Encompass software, a platform used by thousands of mortgage companies and banks across the U.S.
According to the report, the average mortgage loan in June 2014 would close in 41 days. Today, borrowers can expect to wait 48 days to close.
The numbers look different when looking at purchase and refinance applications separately. The average home buyer can expect to close in just 45 days while a homeowner looking to refinance will need a whopping 52 days to close. A year ago it only took 39 days to refinance.
Extended closing times require longer lock periods and greater expense, but there are things borrowers can do to speed up the process.
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Avoid a Longer Closing than Necessary
If you’ve ever bought a home or are in the process of doing so, you know that the dragged out process can be frustrating and scary.
By being proactive and staying ahead of the process, you can ensure a smooth approval and home closing. While some elements might be out of your control, there are some things you can do so that you’re not hit with an unexpected delay or worse.
1. Large deposits can set you back
While it’s important to have sufficient funds in your bank account to cover closing costs, the down payment, and still have some savings left over for a rainy day, lenders want to know where those dollars came from.
If you make any bank deposits – sometimes even as small as $100 – in the months leading up to your home loan application, you’ll need to have a valid explanation, and show any necessary documentation to back it up. In other words, money hidden under your mattress, so to speak, isn’t going to fly.
If you received a large tax refund, you’re covered since that will be easily identifiable. But if a relative gives you a gift, you’ll most likely need to get a letter stating that it is indeed a gift, not a loan. If you’ve sold something – say an old car – you’ll have to show proof of the sale.
In short, be ready to hand over a paper trail if any of your savings are called into question.
2. You can’t hide from your past
If something significant has happened to you in the last couple of years – whether it’s a big change in income or a big gap in your employment – you’ll no doubt be asked to explain it. Lenders look for consistency, so those who have longer-term employment with the same company might speed through that portion of the application versus a job hopper or someone who has unsteady self-employment income.
Either way, be at the ready to verify anything questionable.
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3. Speaking of jobs…try to stick with yours a bit longer
It’s probably not a great idea to make a big career change or start up that entrepreneurial endeavor you’ve always dreamt about right before closing on a home. Your loan approval is based on the information you provide in your initial application, so anything that changes in the interim will surely cause a delay and a whole new round of paperwork.
4. Curb your spending
While you might be tempted to go buy a new patio set or living room furniture for your soon-to-be home, be careful about taking on new debt right before you close. The same goes if you’re due for a new car. Try to hold off on any major spending since mortgage lenders will catch wind of it, and could think twice about lending you money.
Don’t think your lender will find out? Think again. Lenders pull your credit the day of loan funding to check for any new accounts and even recent applications for new credit.
5. Know your credit status
So many people have no clue what their credit score is until they begin applying for home loans. Experts agree that you should know where you stand well in advance of home shopping, that way you have time to try to raise your scores and qualify for more favorable interest rates and loan terms. Ideally, you should get a handle on your credit score at least six months prior to applying for a mortgage so there are no surprises.
Click here to have a lender check your credit and mortgage eligibility.
6. Be proactive with your paperwork
You can bet on the fact that you’re going to have to turn over pay stubs, tax returns, and bank statements from at least the last couple of months. Put in any necessary requests with your HR department if need be, and print out or request paper copies of statements from your financial institutions.
7. Ask for updates along the way
If you’re working with a knowledgeable mortgage broker and/or a real estate lawyer, he or she should keep in touch to provide the next steps in the process. But if communication is lacking, ask a lot of questions, such as what to expect in terms of loan processing times, and what delays could impact the closing. Then, right before you’re scheduled to complete the transaction, touch base to see if there’s any last-minute paperwork needed from you so you can have it prepared the day of closing.
By doing your part to keep the process moving along and educating yourself, you can at least avoid unnecessary delays from your end. When all is said and done, hopefully your home purchase will go off without a hitch… even if it takes a few extra days to get it done.
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PS. If you discovered that this article’s main image features a Haiku, nice job! –Tim, Editor of MyMortgageInsider.com