Mortgage approval: Why does it take so long?

Household 4 min read

If you think it takes too long to process a mortgage application, you may not know the tricks experienced borrowers use to close their home loans fast.

What makes mortgage approval take so long?

In today’s technology-driven mortgage marketplace, home loan processing doesn’t actually take that long. That’s because today’s loan officer or mortgage processor can type your application into an automated underwriting software (AUS) program that can check your credit and payroll data—even your home value sometimes—and generate an approval in seconds.

This is more likely to happen if your down payment is large, your credit is excellent, your earnings are stable, and the property is not unique.

“Atypical” files are more typical

However, most of us don’t have no-brainer files, and mortgage data firm Ellie Mae says it currently takes 47 days to close an average home purchase in the United States.

Why so long? Because it’s not a perfect, seamless digital world yet. Your credit reports may show accounts or derogatory information that doesn’t belong to you. You may receive or pay child support, triggering a request for a divorce decree. The appraisal may unearth potential safety concerns, or your bank statement may show a large deposit that requires explanation. And regulations require lenders to do a final audit on their files before funding mortgages to make sure guidelines are met.

Underwriting delays

Most of what makes applying for a mortgage so time-consuming is waiting for underwriters to inspect and sign off on the documents you supply. When mortgage lenders are experiencing a high volume of applications, underwriters have little time to deal with conditions. It’s not unusual for them to issue a request, give you a couple of days to comply, and then take three more days to examine what you sent. If this occurs three times, your loan can take two weeks longer to close.

If you fail to send underwriters exactly what they need, they are likely to put your file on the bottom of the pile. And if what you send triggers yet another information or document request, you add more days to the process.

Home appraisals take time

Another bottleneck may occur at the appraisal stage. There are fewer home appraisers than there used to be, and they can be busy. And due to recent mortgage reforms, many lenders use appraisal management companies to order appraisals, which can take longer. Figure that an appraisal can take up to 10 business days barring unexpected complications.

If the property is unique and/or very expensive, you may have to wait for a second appraisal or for an appraisal review committee to approve the property value. If the appraiser notes deficiencies in the property, someone may have to fix them before you can close.

Fully-automated lenders cost more

Yes, there are mortgage lenders that use technology very heavily, and they claim to be able to close a mortgage in about a week as long as no third parties (appraisers, title companies, and inspectors, for instance) hold things up. These mortgage lenders allow you to apply online and supply pictures of your documents via phone. They also have access to huge databases of home values, sometimes eliminating the need for appraisals. If you need to close in a heartbeat, they could be your best bet. But you may pay dearly for that convenience for the entire term of your mortgage in the form of higher interest rates.

Consumers who elect to pay less for their mortgages may have to wait longer to close.

How to close your mortgage faster

There are several things you can do to speed up your mortgage application and close on your home loan fast without paying higher interest rates.

Apply for mortgage preapproval

The best way to get a fast mortgage approval is to apply before you need to. Applying for a mortgage preapproval before you go home shopping lets you get past all of those unexpected underwriting conditions without the pressure of a deadline.

Once you, the borrower, are approved for a mortgage, all you need to do is find a property. You can close as soon as the home appraisal comes in if it meets the lender’s guidelines.

Mortgage preapproval confers a few other advantages:

  • You get more respect from home sellers and agents because preapproval is almost as good as cash;
  • You know exactly how much you can spend when shopping for a home; and
  • You avoid the stress of delays while under a home purchase contract.

In addition, you can proactively work with your lender and be prepared for underwriting requests.

Rush your loan to the closing table

Before applying for a mortgage, assemble the documents your lender is likely to need. At a minimum, this includes your most recent pay stubs showing year-to-date income, and most recent bank, investment, and retirement account statements showing your liquid assets.

If you’re self-employed, you’ll need two years of tax returns and financial statements. If you had multiple jobs in the last two years, you need W-2 forms.

It’s smart to go through your application carefully with your loan officer and ask if anything is likely to trigger requests for more documents or information. For instance, if your credit report has late payments, collections, or other derogatory items, have a letter explaining them handy.

Automated underwriting systems generate a list of documents needed to finalize your preapproval. Ideally, you should have those documents with you so you can supply everything right there. Be proactive. If you’re divorced and there is money involved or your ex hurt your credit, bring your decree.

Check your credit beforehand and fix errors before applying. If your down payment is coming from a gift, ask your lender in advance what you need; generally, a letter from the donor plus a paper trail showing that you received the money are required.

Finally, communicate. Check in with your loan officer frequently to make sure nothing more is needed from you. It can’t hurt to make sure the loan officer, processor, and underwriter are on the same page and your loan is not falling through the cracks.

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