Buying a house is probably one of the biggest financial decisions you can ever make. And unless you are incredibly loaded, you will likely need to fill out a mortgage application to finance this investment.
While taking out a loan is the obvious choice for most people, the mortgage application process is not as straightforward as you may think. It involves many individual steps and possible roadblocks.
Keep reading to learn more about the step-by-step process of applying for a mortgage and breeze through it!
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Mortgage Application Process
The broad strokes of applying for a mortgage are pre-approval, home appraisal, and getting the actual loan. Take note that there are many more steps in between and some factors can actually delay the process.
But before you even start talking to a lender for pre-approval, it would be in your best interest to research first to compare mortgage rates. This will ultimately help you find the right lender with agreeable loan terms and interest rates.
A great majority of sellers require a pre-approval before they accept your offer for a house. Pre-approval is a process where a lender checks your financial information like a credit report and debt-to-income ratio. Pre-approval is a definitive indicator of your creditworthiness and ability to borrow.
Your circumstances dictate a large part of how long this process takes, such as being self-employed, having a temporary visa, previous bankruptcy, and many others.
In practice, getting pre-approval can be relatively quick at one week to several months for more complex cases.
Once you receive pre-approval for a mortgage loan, you can now make an offer for the real estate you want. However, even after the seller and buyer agree on a price, the chosen lender must also approve it through a home appraisal.
The home is collateral and lenders need the appraisal in the event of foreclosure to recover their investment. Take note that mortgage insurance may be required from a borrower as a condition of a conventional mortgage.
After the appraisal process, you will still have to apply for the actual mortgage loan. Remember that the lender you get your loan from does not necessarily have to be the same one that pre-approved you.
Underwriting also happens at this stage where an underwriter will review all financial information and verify that there were no false claims made. After this, the deal can now move to closing.
For first time buyers, closing costs may be an unpleasant surprise as they are an assortment of fees required to finalize a mortgage. There are always closing costs whether you are buying a home or refinancing one.
Why Is It Taking So Long?
Mortgages can take a while to approve as they involve numerous checks and information processing. For instance, the lender will have to check the following:
- Income verification
- Financial commitments and outgoings
- Proof of your current home address
- Solicitor details
- Your estate agent’s details
The lender will then conduct a mortgage valuation survey of the house you are looking to buy. Surveyors can get very busy so this survey can take anywhere between a few days to more than a week.
If your background information checks out and the lender is satisfied with the outcome of the valuation survey, the loan officer will offer you a mortgage.
Unfortunately, you can encounter many bottlenecks along the way. Should the lender uncover any problems in your record like low credit scores, previous foreclosures, or overwhelming debt, then your application will likely become more complicated and take even more time to process.
Other common issues include delays in appraisals, tax transcript verifications from the IRS, and employer verifications of employment. You should factor in your schedule the time it takes to get an appraisal as this will vary depending on how quickly you can get an appointment with them.
However, by and large, the primary cause of delays is something you can prevent—not turning in documents in a timely fashion. It would be in your best interest to have all your documents ready for sending at a moment’s notice.
Average Duration to Close a Mortgage
In a normal market, the whole loan application process can take as long as 30 days. During high volume months or financially uncertain times, mortgage applications can take even longer. It is normal to wait as long as 45 to 60 days depending on the lender.
The COVID-19 pandemic has greatly affected the mortgage industry. A survey conducted in June 2020 revealed that half of the homebuyers were denied a mortgage despite having an agreement in principle. This is a noncommittal document that shows the loan amount you can borrow for a mortgage without a full credit check.
Nowadays, many lenders require even more evidence that borrowers are financially stable. Others have even stopped taking into account bonuses and overtime when they calculate how much you can afford for a home loan.
Lenders have become inundated with the mortgage application process and can hardly cope with demand. At the same time, lenders are also kept busy with mortgage holiday applications that have been extended beyond June and due to end in October 2020.
How to Quicken Mortgage Application
Availing the services of a mortgage broker can help quicken the mortgage application process. Brokers are already in-tune with the mortgage products in the market and the specific criteria of most lenders.
Their expertise can cut back the considerable time that you would otherwise spend on research, making appointments, and speaking with individual lenders directly.
Another way to speed up the mortgage application process is by having all the relevant documents on hand and sending them through at the soonest possible time. It would be wise but not necessary to make a list of all your income and financial outgoings because brokers as lenders will want to know that you can afford the monthly payment of the loan.
How Long does the Offer Last?
Standard mortgage offers are valid for up to six months. A re-mortgage, on the other hand, is can last up to three months. Nevertheless, some extend the offer to six months. The difference in validity periods lies in the fact that purchases typically take longer from application to completion.
Some lenders instead have a completion deadline rather than a time limit. Going past this deadline will still allow access to the lender for a mortgage but you will go under reassessment. Normally, this may mean starting all over again from scratch. If your circumstances have changed, lenders can offer you a new deal.