With mortgage rates below 4 percent, this year's mortgage activity has been vibrant. The number of U.S. households lowering their respective mortgage rates via the FHA Streamline Refinance program and HARP 2.0 have been elevated, as has the number of "traditional" rate-and-term refinances nationwide.
The influx of new loans has not just lenders at capacity, but title companies and appraisers, too. It's rendered the "30-day close" somewhat of a rarity. It's tough to close a loan in 30 days anymore -- especially with the amount of paperwork that can be required.
That's not to say it can't be done. It can.
Closing a loan in 30 days requires timeliness from and cooperation between all parties to the transaction. It also means working within federal guidelines meant to purposefully "slow down" a closing.
For example, per federal law, a mortgage lender may not request documentation from an applicant, nor payment for an appraisal, until the applicant provides, in writing, an intent to continue with the loan application. This "intent" is registered via a standard mortgage loan disclosure.
Federal law also prohibits mortgage lenders from processing payment from an applicant until 3 days have passed from the point of application. This precludes a lender's ability to order an appraisal in most cases.
Then, once the appraisal is ordered, and assuming the homeowner grants the appraiser permission to inspect within 48 hours, receiving the completed report will take up to seven business days -- and that's just for an "easy" appraisal. Unique homes and homes in areas with few comparable sales may take longer.
Already, we've burned 10 days, and the loan has not yet gone to underwriting.
In order to go to underwriting, a file must be "complete". That is, it must include the original signed application, the completed home appraisal, and the applicant's complete set of supporting documentation. This may include W-2s, tax returns, pay stubs and bank statements, among other items.
From here, the speed at which a mortgage can close is based on how closely a loan's supporting paperwork matches its original loan application, and how quickly third-parties to the transaction can provide additional supporting paperwork.
Third-parties include homeowners insurance agents, condo associations, employer Human Resource departments, and mortgage insurers and condo associations, when applicable.
A "clean" file will be underwritten in 2 business days. However, for each additional round of verification from the applicant, a process that may include supplying additional bank statements, additional verification, or other, expect to add two more days to the cycle, at least.
Underwriting can two weeks or longer, in some cases.
In a best case scenario, therefore, we're out of underwriting with a cleared-to-close in 14 business days. In a worst-case, we're over a month.
But you can't close yet! Every file that's cleared for closing must next move through a lender's closing department. The closing department's role is to prepare loan documents for closing and to make sure that the mortgage complies with federal law.
As one example, if the loan's APR has changed as compared to the original loan documents, depending on the variance, the lender may be required by federal law to redisclose the terms of the loan to the borrower, after which a mandatory 3-day waiting period is enforced.
Prepping a loan to close may take as few as 2 days, or as many as five.
For home buyers, signing at the closing table marks the end of the transaction. For refinancing families, it does not. Federal law provides yet another "cooling off" period post-closing -- this time, of 3 business days. A refinance won't fund until these 3 days have passed, which eats into the available days of a rate lock.
This is why 30-day rate locks are so tough in today's mortgage market. With volume heavy and underwriting tight, just getting the pieces together in order and on time can be a herculean feat.
It can be done, but it's a challenge.
If you're worried about taking too long to close on your mortgage, consider a 45-day rate lock instead. The trade-off is that you'll almost certainly close your mortgage within the allotted 45-day time frame, however, you'll pay an additional 0.125% on your mortgage rate because 45-day rate locks come at a higher cost.
In an active purchase and refinance market such as this one, however, the extra 0.125% may be worth the cost.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2014 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.