Mortgage rates today are south of four percent, which changes the "Buy vs Rent" debate for many U.S. renters.¬†It used to be cheaper to rent a home than to own one.
Today, in many U.S. markets that's not the case.
Rents are rising faster than home prices and, as mortgage rates have dropped since the start of 2014, buyers can afford 10% more home as compared to last year.¬†
If your maximum purchase price was $300,000 last year,¬†this¬†year it's $330,000.
Furthermore, it's getting easier to get approved for a home loan.
According to Ellie Mae, more than two-thirds of purchase mortgage applications were approved in January, which is the highest approval rate since such records have been kept.¬†
Bidding wars for "right-priced" homes have emerged¬†in major U.S. cities including San Francisco and Miami; and, in smaller big cities, too, such as Colorado Springs, Colorado and Nashville, Tennessee.¬†
Buyers are competing for homes on both price and terms. One such "term" -- the quick closing. Buyers who can close on homes quickly may be better positioned to win a bidding war than buyers requesting closing dates 45 days into the future or longer.¬†
The good news is that lenders are now equipped to help.
Mortgage lenders now require an average of 40 days to close on a home purchase, down six days from one year ago.¬†This is noteworthy for two reasons.
The first reason faster closings are noteworthy is that loans which close in 45 days or fewer often get access to lower mortgage rates than loans requiring more than one-and-a-half month to close. The difference in mortgage rate is typically 12.5 basis points (0.125%).
The second reason why it matters that banks can close quickly is that buyers who "get" the system of how loan closings work can actually close much faster than that.
It's not uncommon in today's mortgage market to witness closings in 30 days or less; and¬†your¬†closing can go equally fast -- the trick is to be prepared.
The U.S. housing market is in recovery, driven mostly by demand for homes which has continued to outpace the supply of homes. Home supply of new and existing homes has been in bull market territory for the better part of two years.¬†
In order to stand out against the competition, buyers are competing on price, requesting fewer concessions, and offering perks to sellers including assurances of a quick closing.
But, what is a "quick closing"? It's tough to define.¬†You tend to¬†know one when you're in one, though.
Quick closings are characterized by buyers granting¬†themselves¬†fewer days to get the loan approved; to scour¬†the home during a home inspection; and, to review and study a final HUD-1 settlement statement.
A typical quick closing may be scheduled for 30 days from now, within three weeks, or at month-end.
Unfortunately, not all banks can accommodate.
According to mortgage origination software firm Ellie Mae, banks required an average of 40¬†days to process, approve and fund a purchase loan in January. This is two days faster as compared to the month prior and a reduction of six days from last year at this time.
There are several reasons why banks are closing loans more quickly lately.
The first reason is because mortgage loan technology has improved and the loan approval process is more streamlined than ever before. Borrowers can typically submit paperwork to lenders digitally; and lenders are able to perform due diligence with greater speed and ease.
The second reason why loans are closing more quickly is that the market requires it. Buyers who can't close quickly are at a disadvantage against buyers who can.¬†
If¬†you're buying a home and need to reduce or minimize¬†your days until closing, then, consider these helpful behaviors. Your loan will likely get approved in fewer calendar days, and you may even get access to a lower mortgage rate and APR.
Most often, the home approval process's rate-determining step in the gathering of documentation from the borrower. Of all the required steps, this¬†is the one which takes the longest.
As a home buyer, then, you can drastically shorten the number of days required to get an approved by returning paperwork to your lender as soon as requested.
This is a common tip and your lender will remind you of it¬†often.
There are other tricks, too, and most are linked to preparation. The home buyers who are the most prepared will typically be the ones who can close on their home the faster.¬†
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 somewhere 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 you'll harm¬†your approval. There are two reasons for this.
The first reason is that withholding information from your mortgage application can constitute loan fraud, which is a far worse outcome than not getting your home loan approved.
The second reason is that your mortgage lender will typically uncover what you're electing to "hide" anyway.
As part of the mortgage approval process, a credit check is performed which lists your creditors, debts, and judgments, if any; occupancy tests are conducted by an underwriter to determine whether you really live where you say you do; and, employers are contacted to verify job status and income.¬†Public records are¬†scoured, too.
If a mortgage underwriter finds an inconsistency between your home loan application and the data available via the above sources, you will be required to explain the discrepancy in detail and may be turned down as a result.
Your lender will¬†uncover whatever information you elect to withhold so share everything that you can.¬†
Remember -- there are a bevy of mortgage programs available today for buyers of all¬†types --¬†from large-downpayment to low-downpayment to 100% financing¬†-- the more information you share with your lender up-front, the faster you'll get to closing.¬†
For a buyer, mortgage pre-approvals are among the most under-used tools to speed a purchase closing.
Home buyers with pre-approvals already in-hand as of the date of offer can typically reduce loan closing times by one week or more. This is possible 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, about the¬†only missing item is often the physical property address of the home being purchase.
To compensate for this lack of "real address", lenders use dummy information based on probable loan data including sample purchase prices, sample real estate tax bills common for the area, and sample homeowners insurance policies and/or homeowners association assessments, where applicable.
With a¬†loan is "pre-approved", a buyer can move immediately from the "Writing The Contract" to the "Underwriting The Loan". This can save 7 days or more days from the approval process.
Mortgage rates are firmly south of 4 percent, pushing buyer purchasing power near its highest point in history. And, with rents expected to rise through 2015 and 2016, this has become excellent time to consider homeownership.
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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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2015 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)