It's taking longer to get a mortgage closed these days.
According to mortgage processing software provider Ellie Mae, the average number of days required to close a loan is now 50 days, up from just forty days one year ago.
The increase has affected today's mortgage rates. Here's why.
Home buyers and refinancing households get access to better mortgage rates when their loans can close in 45 days or fewer. Loans which take longer than forty-five days to close are subject to a 12.5 basis point (0.125%) increase.
There are a lot of reasons why lenders are taking longer to close loans.
There's new federal regulation which has slowed down the process; banks have furloughed employees in advance of rising rates; and, borrowers are, in general, less prepared for the mortgage underwriting process.
Thankfully, banks are willing to offer better mortgage rates to applicants who can close in a lesser number of days. You can ask your lender for a 45-day rate lock -- or even a 30-day lock -- if you think you can help get your loan closed faster.
All it takes to close a loan faster is some basic preparation. The work you do upfront can save you on your mortgage rate, and on your next 30 years of mortgage payments.Click to see today's rates (Jun 1st, 2016)
When you apply for a mortgage, among the first steps your lender will take is a full review of your history managing credit.
And, unfortunately, nearly 1-in-4 credit reports contain errors of some kind.
Some credit report errors are minor (i.e. a closed account is marked "open"), however, some are major. For example, a doctor's bill may have gone into collection that was actually paid-on-time, but misfiled by the physician's office.
A derogatory credit event such as a collection can affect your credit score by 100 points or more, which can mean the difference between getting approved and getting turned down.
Issues such as this can be corrected, but correcting a credit report takes time and surprises like this are avoidable.
Consumers are entitled to one free credit report per year under federal law. These reports do not show your credit score, but they will tell you whether you have paid accounts on time or missed payments.
Having a "clean" credit report can save one week or more off your mortgage closing time.
Every mortgage application is unique and, as such, the paperwork requirements can vary. However, there are a number of papers which are commonly required.
Rather than scramble to gather the necessary forms after your loan is locked, you can save yourself time by collecting the required paperwork in advance.
If you can scan the documents and have them ready to upload or email to your lender, even better. Mailing paperwork can take 2-3 days. Digital uploads are instantaneous.
Typically, mortgage applicants are asked to show:
And, if you're self-employed or paid in commission, be ready with your last two years of federal tax returns.
For borrowers with more than 4 properties financed, be ready with a rent roll and other documentation related to your other homes.
Your advance preparation can turn into real savings.
Closing costs vary by state, and are different for purchases as compared to refinances. However, you can save time on your mortgage approval if you know how you want to have your closing costs paid.
There are three options for paying mortgage closing costs.
The first option is to pay your mortgage closing costs with cash or home equity. With a home purchase, this means that your closing costs are paid at closing, along with your down payment.
On a refinance, it means that your closing costs are added to your loan balance, which is often known as "rolling your costs" into the loan.
The second option is for home buyers. Using "seller concessions", you can ask the seller to pay the loan closing costs on your behalf.
Using seller concessions requires an addendum to the home's purchase contract, so if you know you want to use seller concessions, be sure to ask about it in advance.
Most sellers are willing to give seller concessions for buyers who ask early enough in the process.
And, the third closing cost option is to use a zero-closing cost mortgage.
With a zero-closing cost mortgage, the borrower's mortgage rate is increased by a small amount. In exchange for accepting a higher rate, the lender will pay all loan closing costs on the borrower's behalf.
In general, on a loan size of $400,000, a mortgage rate increase of 12.5 basis points (0.125%) can make the zero-closing cost loan possible.
It's easier to arrange for a zero-closing cost mortgage at the beginning of the mortgage process because changing how closing costs are paid requires lender to re-issue loan disclosures to all parties.Click to see today's rates (Jun 1st, 2016)
Sometimes, in a panic to find a mortgage rate quickly, mortgage borrowers will short-cut the rate shopping process. They'll shop their "primary" bank only, ignoring what other banks have to offer.
This can be a mistake.
Mortgage rates are different with every bank and the lender with the lowest rates today may not be the lender with the lowest rates tomorrow.
First, you'll want to settle on the terms of your mortgage. Determine:
Then, you'll want to decide whether you want to pay your own closing costs, or whether you prefer seller concessions or a zero-closing cost mortgage.
Once you've settled all that, it's time to comparison shop.
Speak with at least two lenders (and more if you can!) to gather quotes for mortgage rates and closing costs. Include your current bank or lender on that list, if it's provided you with good service in the past -- just don't assume that's where you get the best "deal".
Ask for written quotes but, because mortgage rates change all day, every day, make sure to do all of your shopping within as small of a time window as possible.
Getting a rate quote at 4:00 PM and comparing it to quote from 10:00 AM the next morning is a waste of your time. Coordinate via phone, email, text message, or app to make sure all of your quotes arrive near the same time.
Also, remember that it's very hard to compare mortgage rates and mortgage fees at the same time. You'll want to use this rate-shopping trick.
When you're prepared to shop for your mortgage rate, you can save yourself time. Your lender will know exactly what you want, and you can move toward your closing more quickly.
Today's mortgage rates are low. Plus, with even just a tiny bit of preparation, you can get your lender to quote you even lower.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Jun 1st, 2016)
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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2016 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)