A Long Mortgage Process Can Be Your Friend or Your Worst Enemy

August 17, 2012 No Comments »
A Long Mortgage Process Can Be Your Friend or Your Worst Enemy

Let’s face it, these days it takes a while to get a mortgage. And by a while, I mean months in some cases.

Why? Because everyone and their mother is well aware of the record low mortgage rates, and they all want a bite.

As a result, both purchase and refinance transactions are averaging 48 days to close as banks and lenders merely try to keep up with demand.

This means once you submit your loan application, it will take an entire month and a half to actually close the deal, if you’re lucky.

Obviously this is more important for purchase transactions, as they are more time-sensitive, but timing is very important when it comes to refinancing as well.

Mortgage Rates Subject to Change

When you see a certain mortgage rate advertised online or on TV, you must take it with a large grain of salt.

First off, it’s a perfect-scenario rate for someone that meets certain requirements, such as having a great credit score, a large down payment (or low LTV ratio), and a loan amount below the conforming limit.

Assuming you meet all those requirements (and more), that rate may still be out of reach for one reason or another, one being time. In short, a rate you see today may not be available tomorrow.

That brings us back to that 48 days to close situation. Per the latest Origination Insight Report from Ellie Mae, refis averaged 48 days to close in July, while purchases averaged 47 days.

These numbers have been inflated for the entire year now, and loan originators are swamped trying to get all those applications funded. While they’re working to fund your loan, don’t expect mortgage rates to stand still. Instead, expect a roller coaster ride at best.

Who’s Hurting?

Well, in the past couple weeks mortgage rates have been trending up after touching all-time lows.

As a result, those who submitted loan applications a month or so ago may be in for a rude awakening.

For example, they may have submitted their loan when the 30-year fixed was averaging close to 3.5%, only to find rates have climbed to 3.75% today.

If it’s almost time to close, they’ll have no choice but to take the higher rate (or buy down their rate). A higher rate could also jeopardize their approval if it swings their DTI ratio too high.

Clearly this isn’t ideal, but this is why savvy borrowers lock their rate instead of floating it when rates are attractive.

So those who got greedy or simply didn’t think to lock might be bummed out.

Is Now the Time to Wait?

Because mortgage rates have been climbing steadily on what appears to be no news, we’re probably due for a correction sometime soon.

After all, the economy hasn’t exactly proven itself, and Europe isn’t out of the woods. It seems their latest move is to just keep quiet and hope no one notices what’s really going on.

It certainly seems to be cyclical, with bad news and good (or no news) coming in and out, pushing mortgage rates up and down.

At the moment, we’re in an uptrend, so those who just submitted loans may want to wait it out until things improve again. Heck, you’ve got more than a month to decide.

Sure, you run the risk of mortgage rates climbing even higher by the time you close your loan, but with no great news out there, there’s a good chance rates could trend back down to where they were a month ago.

All that said, make sure you consider timing when submitting your loan. Ask your bank or broker how long it will take to close, and plan accordingly to ensure you get the rate you want.

For the record, the closing rate has been pretty dismal of late. Only 37.9% of refis and 58.7% of purchases actually closed(within 90 days), meaning plenty of loans are getting denied for one reason or another.

Read more: Reasons why your refinance was denied.

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