Curve

Drop what you’re doing and finish your mortgage application instead

Craig Berry
The Mortgage Reports contributor

Secure your low rate by being first in line

Mortgage applications in the U.S. went up more than 15% in the last week of February.

Refinance activity is nearing levels that haven’t been seen since 2013.

As a result, lenders are feeling overwhelmed and often short-staffed.

Loan officers and processors are suddenly dealing with mountains of applications, which will lead to closing delays for those near the bottom of the stack.

You’ll want to be sure you close on time. Otherwise, your rate lock could expire, putting your low rate and savings in jeopardy.

So turn your paperwork in ASAP. Respond to your lender’s requests quickly. And try to get your application to the front of the line to avoid long delays.


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Record-low rates have brought on a crush of applications

With mortgage rates dropping below 3.3%, there are now millions of homeowners who can benefit from refinancing.

In fact, nearly 13 million homeowners can save money by refinancing their home loans to lower their current rates by at least 75 basis points, according to Black Knight.

75 basis points equal 0.75% — almost a full percentage point off your mortgage rate.

That could even include people who bought or refinance just a year ago, when rates were above 4%. And those who still have a mortgage rate in the 5s or higher stand to see huge savings.

So it’s no surprise that homeowners are queueing up to refinance in huge numbers.

But the thing many homeowners don’t consider is that mortgage lenders have limited capacity. There are only so many loan officers set up to handle the millions of applications coming in.

That can mean big delays for borrowers, as loan applications get caught in the pipeline.

>> Related: How long does it take to refinance a house?

How lender delays affect mortgage borrowers

When a lender’s volume increases, bottlenecks occur. Bottlenecks mean that turnaround times can go from days to weeks, even months.

These delays will be passed on to homeowners looking to refinance. Closing dates will be pushed back, and rate locks can be affected too.

Some lenders are forced to pass along rate lock extension fees to mortgage borrowers.

Once a rate lock has expired, the lender is free to raise your interest rate if rates have gone up.

These fees can add up quickly for refinancers, potentially eating into refinance savings.

But without a lock extension, borrowers risk passing their rate lock expiration date. And once a rate lock has expired, the lender is free to raise your interest rate if rates have gone up.

So, what can you do to ensure your application goes through on time — and at the promised rate?

>> Related: Can you unlock a mortgage if rates fall?

What you can do to speed up your mortgage application

Bottlenecks can occur at any stage in the mortgage loan process.

The most common delays typically occur between the stages of processing and underwriting.

This is especially true when volume increases, and can be compounded by newly hired individuals who are still learning how to properly handle loan files.

Mortgage applications contain detailed information that ultimately decides whether or not you are eligible for a home loan.

Information such as credit history, income, employment history, monthly debts, and how much you have in assets, will all need to be documented appropriately.

As a mortgage borrower, you can get ahead of this process by being prepared. For example:

  • If you’ve had more than one job in the past 24 months, be prepared with the dates you were employed, your income, and the name and contact information for all employers
  • If you are self-employed, most lenders will require all pages of both personal and business tax returns. You may also need to provide a year-to-date profit and loss statement
  • If you have some credit blemishes, you should be prepared to document the reasons for these issues
  • If you’re applying for a VA loan, your lender will often need your certificate of eligibility. Lenders can use your DD-214 form to obtain this on your behalf. Having your DD-214 available at the time of application can save you and your lender time
  • If you pay alimony or child support from a previous marriage, have your divorce decree, separation agreement, and any other court orders ready
  • If there’s a bankruptcy showing on your credit report, have your filing and discharge paperwork readily available

Also, note that missed signatures are one of the leading causes of refinance delays. So pay close attention when you’re signing documents. If your lender lets you know you missed a page, make signing and returning that paper a top priority.

Loan documents you should have on hand for your application

Typically, refinance loans will require a few standard documents.

You can help expedite the process by having these standard items handy.

Your lender will need a copy of your:

  • Driver’s license
  • Government-issued ID showing your social security number

If you’ve lost your social security card and you don’t receive W2s, it’s not a bad idea to apply for a new social security card.

Your lender will need to see proof of income, too (unless you’re applying for a streamline refinance).

That means you should have:

  • All pages of the last two years’ tax returns
  • 30 days’ worth of recent paychecks
  • Bank statements, if you’re self-employed

You’ll also need to provide the contact information for your homeowner’s insurance company.

Ask your lender if they have a digital portal to upload your documents. Sometimes this can speed up the process.

If you don’t have a scanner, download an app that lets you turn photos intp PDF files.

And if you don’t have access to a scanner, you may want to download an app such as Adobe Scan.

This app allows you to quickly take a picture of your documents and turn them into a PDF.

How the mortgage loan pipeline works

Most people have seen advertisements about “iMortgages,” or some type of electronic mortgage that can help you close your loan much faster.

In spite of these claims, there’s a lot of time and energy that goes into getting a mortgage — both on your end and your lender’s end.

While there have been technological advances that help streamline the process, there are still plenty of steps that involve real people when it comes to a home loan.

The “real people” that actually have their eyes and hands on your loan include:

  • Loan Officer – these folks go by many titles these days but their role remains similar regardless. Loan officers help you complete your loan application and keep track of what’s happening during the loan approval process. They are typically involved from application to closing
  • Loan Officer Assistant – not all mortgage lenders utilize loan officer assistants (LOAs) but with increase mortgage volume, these individuals can be extremely helpful to loan officers, as well as loan processors. This individual assists the loan officer in the application process. They also work with loan processors as your file transitions from loan application to loan processing
  • Loan Processor – The loan processor’s role is to prepare your mortgage loan for the underwriter. This person will often request additional documents from you both before and after underwriting. The loan processor makes sure all documentation is in order, all numbers all properly calculated, and everything is “stacked” in its proper order
  • Mortgage Underwriter – The underwriter is the person authorized to assess if you are eligible for the loan you are applying for. This is the individual who approves or rejects your loan application based on a number of qualifying factors such as credit, income, employment history, debts, and other factors
  • Mortgage Closer – Mortgage loan closers assemble, prepare and review critical closing documents for mortgage loans. After your loan is approved by the underwriter, mortgage closers coordinate the closing process to ensure that all documents are correct and all terms of the loan are met

At any of these stages, one person’s backlog could slow down lots of applications.

That’s why it’s important to respond promptly to all your lender’s communications and stay very organized.

Lender volume can actually push low rates higher

With record-breaking mortgage rates comes record-breaking volume for mortgage lenders. When lenders experience this surge in business, many will face capacity issues.

And when lenders experience these capacity issues, they are often forced to find a way to slow volume down.

Since lenders won’t actually turn away business, a common solution is to bump the interest rates to help curtail the rush.

That’s a big part of the reason mortgage rates haven’t stayed around 3%, or even dropped into the 2s.

In addition, many lenders are hiring for almost all positions to help manage volume.

But the spots that tend to get bogged down the most are back-end positions such as processing, underwriting, and closing departments. These are where borrowers often see delays.

And even with mass hiring, it will take time to get new hires up and running.

Low rates will continue to fuel mortgage applications

The weekly data provided by Freddie Mac is considered the gold standard among mortgage industry professionals.

And in the near-50 year history of Freddie Mac’s report, rates have never been this low.

That means it’s an incredible time to get a mortgage, whether you’re buying your first home, refinancing, or making the leap to a second home.

Just make sure you stay on top of your application to avoid delays. Missed paperwork could potentially mean a missed opportunity for record-low rates.

Verify your new rate (Sep 28th, 2020)