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Applying for a mortgage and getting approved is only one step on the road to buying a home. You'll need to actually close on that loan to move forward with that purchase. And the sooner you're able to do so, the better.
A rapid mortgage closing can help you get into your new home faster. It can also help ensure that you wind up with the rate you initially lock in.
When you get approved for a mortgage, it's common practice to pay a small fee to lock in your rate for a period of time. That period could be 30 days, 45 days, or more. The longer your rate-lock period, the more you'll pay. If your closing is delayed, it could push your closing date beyond your rate-lock period. If that happens you could wind up with a higher mortgage rate than you'd like.
Unfortunately, Ellie Mae's October origination report shows it's taking longer to close on mortgages than earlier in the year. Between September and October, the average amount of time to close on all mortgage types increased from 51 to 54 days -- and that's up from 40 days back in March. Meanwhile, the average closing time for a mortgage refinance increased from 35 days in March to 57 days in September.
Why do mortgage closings take so long?
There are a lot of steps that go into closing on a mortgage. First, a lender needs to check your application and all your documentation. From there, an underwriter needs to review your financial information to make sure you're a viable candidate (to be clear, this step needs to be taken even after a lender approves you).
The home you're looking to buy or refinance will also need an appraisal, which determines its market value. This is so your lender can be sure the home is worth enough money to support the loan you're taking out. If you're getting a $300,000 mortgage for a home worth $280,000 and you default on your loan, your lender won't be able to sell your home and get all its money back. As such, the appraisal is something that needs to happen before your loan can close.
Finally, your home will need to undergo a title search. This is basically a search of public records to ensure the seller has the right to sell, and there are no outstanding liens on that home (meaning, another party doesn't have a financial stake in or right to that home).
These numerous steps can delay a mortgage closing. Furthermore, mortgage lenders can just plain get backed up during periods when applications boom. Sometimes, there's no specific issue with a closing per se -- it's just a matter of volume. In fact, that's a big reason why mortgages are being delayed of late. Low mortgage rates have caused a surge in applications, and some lenders are having a hard time keeping up.
How to speed up your mortgage closing
The sooner you're able to close on your mortgage, the sooner you can move forward with your homeownership plans, and the less you'll have to worry about your rate lock expiring. Certain holdups on the closing front may be beyond your control, but you can do your part to expedite your closing. For starters, make sure you provide your lender with all necessary documentation in a timely fashion. That includes:
- Two months of paystubs
- Two months of bank account statements
- Your last two years of tax returns
- A letter of verification from your employer stating you're an employee in good standing
- Proof of homeowners insurance (you can't close on a mortgage without this)
Your lender might request additional documentation on top of these items. Pay attention to what's being asked of you so you don't delay the process.
Finally, you can speed up your mortgage closing by just plain being available in case questions about your file arise. Responding quickly could, in some cases, spell the difference between keeping your originally offered rate or losing it.