Why Mortgage Refinances Are Taking A While
In 2016, my mortgage refinance took 97 days to complete after averaging only 45 days for my previous three refinances between 2005-2010.
In 2019, I went through one of the most difficult refinances that took over 60 days to complete.
Then in 2020, I took five weeks to just get preapproved for a mortgage. Im thankful my mortgage finally got preapproved because I was able to buy a house for a great deal that got listed just a month after lockdowns began.
So what on earth caused mortgage refinance times to skyrocket by so much since the financial crisis?
After writing dozens of posts, reading hundreds of comments, and speaking to multiple loan officers offline and online for the past 24 months, Ive come with six definitive reasons as to why refinancing a mortgage now is as fast as a stampede of turtles running through peanut butter.
If you plan to go through a mortgage refinance, mentally plan for a three to four month long process. Happiness is about managing expectations.
Why Does It Take So Long To Refinance A Mortgage
Updated: by Financial Samurai
Are you wondering why does it take so long to refinance a mortgage? The simple answer is because lending standards have tightened tremendously since the 2008-2009 Global Financial Crisis. Underwriters are asking for more documentation to prove your income and net worth.
The banking sector lent too loosely before the crisis. Then the banks lost a lot of money when the housing market crashed. As a result, regulators locked down. Now the banking sector has increased their lending standards tremendously in this extremely strong housing market.
In 2021, the average credit score for an approved mortgage applicant was 760. And in order to get the lowest mortgage rate possible with the lowest amount of fees, you need a credit score of 800+. In 2022, the average credit score for approved mortgage applicants will continue to be elevated.
Further, many banks are requiring at least 20% down, especially if you are going to take out a jumbo loan. The mortgage lending industry has really tightened, especially during the pandemic. The lending industry doesnt want to go back to the 2008-2009 financial crisis days where they experienced a wave of defaults from borrowers who couldnt afford their mortgages.
Engaging The Services Of A Broker
It is highly recommended to use a mortgage broker who can suggest a suitable lender for refinancing your mortgage. You need to quickly settle the terms of engagement with the broker so that you can initiate the refinance process as soon as possible.
When you first consult with a broker about your refinance options, it is important that you have your priorities straight. Instead of focusing on rates, fees and other financial details, hone in on what a broker can offer you when it comes to providing the best service possible and the terms of the loan. Many borrowers get fixated on the interest rate, particularly in the rising interest rate environment we currently find ourselves, and neglect to understand the terms of a loan.
Its easy to pick out the lowest rate on the market for a loan, but what about penalties, fees, home equity options, amortization, and other factors? A professional mortgage advisor will walk through all these intricacies with you so that you are equipped to make the best decision possible based on your situation.
Working with a broker gives you the opportunity to gain professional insight about mortgage refinancing, so take advantage of it. Ask your broker about any questions that you have. The more you understand about refinancing, the better able you will be to navigate the process efficiently.
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How Long Does Underwriting Take
Mortgage lenders have different turn times the time it takes from your loan being submitted for underwriting review to the final decision.
The full mortgage loan process often takes between 30 and 45 days from underwriting to closing. But turn times can be impacted by a number of different factors, like:
- Internal staffing policies
- Loan application volume
- The complexity of your loan profile
Depending on these factors, mortgage underwriting can take a day or two, or it can take weeks.
Under normal circumstances, initial underwriting approval happens within 72 hours of submitting your full loan file.
In extreme scenarios, this process could take as long as a month. However, its unlikely to take so long unless you have an exceptionally complicated loan file.
When youre shopping for a mortgage, ask lenders how long its currently taking them to close on a home purchase or refinance .
In addition to shopping interest rates and closing costs, turn times should be one of the final factors in your ultimate choice of a lender.
How Long It Takes To Refinance
The average time to refinance a house is 30 to 45 days, depending on your circumstances. The actual time frame to refinance could run anywhere from 15 to 60 days or more, however.
You could face delays, depending on the economic climate, which could make it take longer. Other factors that determine how long to refinance a house include the complexity of your financial situation and the documentation required.
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Does Underwriting Take Longer For Refinance Loans
Currently, most lenders are taking longer to process refinance applications than home purchase loans.
Home buyers have hard deadlines they must meet, so they typically get first priority in the underwriting queue.
The average turn time for purchases, from underwriting to closing, is approximately 30 days. Refinances are averaging 45 days.
But keep in mind, closing times vary by lender. The underwriting process could move much faster if a lenders underwriting team has lots of bandwidth, or slow to a crawl if theyre swamped with loan applications.
When youre applying for loans, you can ask lenders about their current closing times to help evaluate which ones will be able to approve your home loan more quickly.
Conditional Approval And Final Review: 1015 Days
Over the next week or so, well begin vetting and processing your loan application with the aim of getting it conditionally approved. This indicates that your documentation and assets have been preliminarily okayed by an underwriter, but our team may still have to review a few things before we give you the final approval on your loan. It’s our job to ensure the title, appraisal, and homeowners insurance requirements are sorted and cleared. From here, our team will also do a more thorough examination of your credit history and debt-to-income ratio to confirm there havent been any significant changes since you started this process. New debts can impact your DTI ratio and jeopardize your eligibility for refinance. This part of the process typically involves a bit of back-and-forth communication as additional questions crop up, so be on the lookout for notifications about follow-up tasks in your accountfor example, you might be asked to clarify any large, one-off transactions in your bank statements.
- Expect weekly updates from your loan team as we make progress on your refinance
- Monitor your account and complete outstanding tasks as they arise
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Avoid This Costly Mistake
If you are thinking of refinancing and want to close in 30 days or less make sure you avoid this:
- During the refinance process do not apply for new credit
Dont apply for a new car loan, personal loan, boat loan, and dont apply for a new credit card. In fact, dont apply for anything during the time you apply for your new mortgage until the day it closes .
If you do apply for a new car that then has to be documented. It could add an additional seven to fourteen days to your time frame depending on how fast the Loan Officer can receive the documentation he or she needs to send to underwriting.
And not only will it dramatically slow the process it also may cause your Debt-To-Income ratio to move above the lenders limit which means they would then have to turn down your application.
How To Speed Up The Refinance Process
Every situation is different, but theres a lot you can do to avoid delays and even speed up the process:
Find out if refinancing is right for you
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Compare Lenders And Find The Right Refinance Program
You will probably save money if you refinance your mortgage but it usually isnt free. Lender closing costs and thirdparty origination fees could cut into your bottom line. Thats why its so important to compare lenders.
The average closing costs on a refinance can range from 25 percent or more of the loan amount. So, if you want to quickly recoup the money you spend on closing costs, you should compare what lenders are charging to refinance mortgages.
For example, some lenders today now offer zeroclosing cost mortgages. For a slightly higher interest rate, lenders will credit all the costs to originate the mortgage at the closing table. Youll need to shop around to find a noclosing cost lender.
Its just as important to find the right refinance program as it is to find the right lender. Fortunately, you have several refinance options to choose from:
- Conventional Mortgage Refinance
- VA Streamline/IRRRL
- FHA CashOut Refinance
- USDA Streamline Refinance
- Home Equity Loans / Home Equity Lines of Credit
Knowing what kind of refinance you need will make it easier to find a good lender and low rate when the time comes.
Speak To Your Broker To Find Out More About Refinancing Today
Copyright 2022 Mortgage Choice Pty Ltd | ABN 57 009 161 979 | Australian Credit Licence 382869 | FinChoice Pty Limited | ABN 97 158 645 624 | AFSL 422854 | Head Office: Level 10, 100 Pacific Highway, North Sydney NSW 2060 | Mortgage Choice is owned and operated by ASX-listed REA Group Ltd
Legal disclaimer and information.
*Note: the home loan with the lowest current interest rate is not necessarily the most suitable for your circumstances, you may not qualify for that particular product, and not all products are available in all states and territories.
#The comparison rate provided is based on a loan amount of $150,000 and a term of 25 years. WARNING: This Comparison Rate applies only to the example or examples given. Different amounts and terms will result in different Comparison Rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the Comparison Rate but may influence the cost of the loan.
~Not all brokers or advisers offer the products of all lenders or solution providers.
Choose Your Home Loan And Speak To A Specialist
A good home loan lender will have specialists on hand to speak to you and answer your questions about what the right home loan is for you. These specialists should be able to answer questions like:
What interest rates are available on their loans?
What are the steps to get you a new loan?
Which loans have useful features?
How does their home loan application process work?
loans.com.au has home loan specialists with years of experience to help guide you through the process.
What Impacts Refinance Timelines
If your refinance is taking longer than expected, you might start to worry that something is wrong with your loan application or borrower qualifications. But theres no need to panic just because your refi is dragging a bit. There are plenty of valid reasons for a sluggish refi timetable and many of them have nothing to do with the quality of your loan application.
- Loan volume: Lenders try to balance speed and diligence when processing a home loan, but even seasoned refi professionals can feel overwhelmed during seasonal peaks. When there simply arent enough loan officers, appraisers and underwriters to go around, your refi may take longer to process.
- Lender type: Working with a dedicated mortgage lender has a lot of perks, but one that goes overlooked is specialization. A bank, credit union or other financial institution may offer multiple types of loans and services in addition to mortgages. As such, their workflows may not be as streamlined as a lender that exclusively caters to residential mortgages. And that can mean longer processing times when youre ready to refinance.
- Loan team size: Smaller lenders may assign a single loan officer to spearhead most refi tasks for you. Meanwhile, a larger lender with significantly more resources can put an entire team on your case. With several lending experts managing their own piece of the mortgage process, loan approval can move ahead at a quicker pace.
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What Is A Cash
A cash-out refinance is a type of refinance loan that allows you to take out some of your equity in the home in the form of cash.
With a traditional refinance, you replace your current mortgage with a new loan, often to obtain a lower interest rate or more affordable monthly payment. But in the case of a cash-out refinance, you take out a new loan thats larger than the balance of your current mortgage. Part of the loan is used to pay off your current mortgage, while the rest is given to you in cash.
People use cash-out refinances for a variety of purposes, including paying off high-interest debt, covering a childs college tuition, paying for home renovations, and more. Low interest rates and increasing home values have made these loans particularly attractive in the past year.
Since mortgages typically have lower interest rates than other types of financing, people have been able to borrow against their home equity at a cheaper rate than other means of borrowing like personal loans or credit cards.
Simultaneously, Zillow data shows the average home price has increased more than 18% in the past year. As a result, people have more equity to borrow against than they would have a couple of years ago.
As with any other mortgage, lenders will consider factors such as your , debt-to-income ratio, and the amount of equity you have in your home. Lenders usually only allow you to borrow up to a certain percentage of your homes value, called the loan-to-value ratio .
Receive Your Loan Estimate
Within 3 days of submitting your application, well send you a Loan Estimate that provides important information about your loan, including the estimated interest rate, your monthly payment estimate and expected closing costs. After you review it, call or email your loan officer within 10 days to confirm that youd like to proceed with your application.
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Your Refinancing Fees Are Too Expensive
A mortgage refinance can be expensive. Here are some typical fees you may have to pay.
- A mortgage application fee
- Origination fee
- Appraisal fee
Make sure you know what costs to expect and whether you can afford them. If youre unable to pay the fees at this time, you may need to wait before refinancing.
Refinance Mortgage Process Explained
The refinance mortgage process includes multiple steps. The lender will check your finances to be sure you can afford the payments and confirm the value of the property before approving the loan. Below is a sample timeline for the various steps in the refinance process. Keep in mind, though, how long it takes to refinance a house will depend on your finances and documentation, loan program requirements, whether an appraisal is needed, and the volume of business your lender is handling.
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How Long Does It Take To Refinance A House After Appraisal
However, if you have a more complicated financial situation, your lender might take up to 3 weeks to finish underwriting your loan.However, the appraised value is usually valid for a few months after its completed in case you run into any other roadblocks.However, theres a lot more to the process than just the average numbers.If rates have risen in the interim, you may not qualify for the loan if the new rate results in a payment you cant afford.
If the appraisal and title search drag on, the lock may expire before you can close on your home.If you are wondering how long after appraisal does it take to close on a house loan?If you ask a loan officer, theyll most likely say anywhere from 30 to 45 days.If you live in a larger area, it might take some time for an available slot to open with an appraiser.
In a typical transaction, it might take anywhere from one to four weeks after the appraisal for the borrower to reach closing.In other words, once you and the buyer have worked out details about a price, repairs, and creditsessentially all the financial give and takethe lender will send in an appraiser to assess the fair market value of the home.In truth, this process should take less than an hour.It all depends on the volume the bank is handling at the time and how quickly you get your lender what they need.