Posted April 4, 2014Tweet
How many days does it take to get a mortgage approved? Fewer than it used to.
According to mortgage origination software provider Ellie Mae, U.S. lenders cleared loans for closing at the fastest rate in 7 months. It now takes 42 days, on average, to close on a mortgage purchase loan -- down five days from the month prior.
It's a meaningful improvement for today's active buyers. Mortgage closings of 45 days or fewer benefit from lower rates as compared to closings of more than 45 days.
In February, 4.60 million homes were sold on a seasonally-adjusted, annualized basis according to data from the National Association of REALTORS®.
The reading marks the fourth consecutive month in which home sales failed to top five million annualized sales, and was also the slowest home sales rate in one-and-a-half years.
Despite fewer home sales, though, U.S. home supplies remain tight.
There were just 2.00 million homes for sale at the end of February, a supply which, at the current pace at which buyers are buying homes, would be exhausted in 5.2 months.
Home supply of six months or fewer connotes a "seller's market" and recently rising home prices support this theory.
Home values are up more than 7 percent since last year and are now at levels not seen since 2008.
Today's buyers are competing hard for homes. Most will compete on price, but many will also choose to offer a "quick closing" as a means to make their offer stand apart from the pack.
"Quick closings" have no specific definition.
A quick closing may be a closing scheduled for 30 days or fewer or one which must be completed before the end of the month, as examples. With a quick closing, there is less time to get a mortgage approved; less time to scour the home inspection for details; and less time to prepare for a final settlement.
Quick closings are getting simpler.
The time required to process, approve and fund a purchase loan dropped five days in February to 42 days nationwide, on average. It's the fastest pace in seven months and equals the shortest number of days required to approve a purchase loan since Ellie Mae began tracking such data in 2011.
Approval times likely dropped on a combination of factors, each of which may be temporary or seasonal.
First, unseasonably cold weather through the winter months slowed purchase loan activity. Applications fell to multi-year lows as home supply languished and demand from buyers dipped.
Second, stagnant mortgage rates contributed to a drop in demand for loan refinances.
Just 138,000 conforming mortgage refinances closed in January -- a 60% drop from last year's monthly average. The HARP 2.0 program accounted for thirty-thousand of these refis.
Fewer refinances in-process leaves more time for lender to close on purchase loans quickly.
Lastly, overall, lenders are processing loans more efficiently.
A wave of regulatory changes late last decade forced U.S. lenders to implement new software and technologies to manage the rules put forth by Congress. These changes have helped to introduce electronic signatures for purchases and refinances; online submission of W-2s and tax returns; and a drop in preparatory time required to generate a borrower's final loan documents.
This, too, has shaved days off the mortgage origination process.
For buyers wanting to close on a purchase quickly, note that there are a lot of factors will be beyond your control. For example, you cannot control how fast an appraisal is performed because the appraisal requires the cooperation of the seller; nor can you control how quickly a title search is performed by a title company.
However, there are steps you can take to make sure your loan gets approved as fast as humanly possible. Step one is to be prepared.
It's no secret. Mortgage lenders like paperwork. When you're buying a home, you'll want to be prepared with the most commonly-required verification documents. This can include W-2 statements and federal tax returns from the last 2 years; your two most recent paystubs; and your last two bank statements.
You should also have a copy of your drivers license handy, as well as the social security numbers of everyone whose name will be listed on the mortgage.
Furthermore, if you know you have a unique credit situation such as a recent short sale or foreclosure; child support or alimony payments; or gift funds from a relative, have the relevant, related documentation ready.
This "gathering paperwork" step can be the most time-consuming one in the mortgage approval process. You know you're going to need the documents. Consider scanning them and having them ready in advance. This can save days off your approval time and help you reach your closing more quickly.
Be honest and open with your lender -- even if you worry that what you share may harm your approval. There are two reasons for this.
The first reason to share is that withholding information from your mortgage application can constitute loan fraud, which is a far worse outcome than not getting mortgage approved. The second reason is that your mortgage lender will often uncover what you're electing not to share anyway.
As part of the mortgage approval process, a credit check is performed and various "occupancy tests" are conducted by an underwriter. Employers are contacted to verify job status and public records are sometimes checked as part of the approval.
With so many mortgage programs available for today's home buyers -- from large-downpayment to low-downpayment to no downpayment at all -- the more information you share with your lender, the more equipped he'll be to help you close quickly.
For a buyer, mortgage pre-approvals are among the most under-used tools to speed a purchase closing. Home buyers with pre-approvals in-hand at the time of offer can typically reduce closing times by one week or more. It's because of the role which a pre-approval plays to a lender.
Mortgage pre-approvals are "dry runs"; approvals based on an expected set of loan criteria which will eventually go to closing.
During the pre-approval process, your lender will take a complete loan application which includes performing an income and asset verification, and he will account for specific loan traits which may affect your final approval such as your personal credit scores, any required child support payments, and the availability of a co-signer, as examples.
In fact, when a pre-approval is issued, the only missing item is often the physical property address of the home being purchase.
To compensate, lenders use dummy information based on probable loan data including a sample purchase price, a sample real estate tax bill, and a sample homeowners insurance policy and/or homeowners association assessment, where applicable.
With their loan "pre-approved", buyers can move immediately from the "Writing The Contract Phase" to the "Underwriting The Loan Phase". This can save 7 days or more days from the approval process.
For buyers looking for a quick closing, it can be tough to buy a home in less than 30 days. However, plenty of buyers are doing it. The key is to be prepared and the first step in getting prepared is to get mortgage pre-approved.
Pre-approvals will help strengthen the offer you make a home, and they'll help your mortgage approval go through more quickly. So, get started with a pre-approval today and see how much home for which you'll qualify.
Rates and pre-approvals are available online with no cost or obligation.
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.