The wait between submitting your mortgage application and getting a response can seem like forever. You’ve submitted all your documents and did your part, but now you have to wait for the lender’s decision. In this article, we’ll explore the mortgage process and why it can take so long.
There are several steps involved in the mortgage process, which unfortunately, take time. On average, the whole process takes about one month, but it varies between lenders and depending on the time of year and current market. During busier times, such as at the height of the pandemic when the housing market was booming, it can take up to 60 days. Generally speaking, mortgage companies have faster turnaround than credit unions and banks, but of course, that’s not always the case.
One way to speed up the process is by getting pre-approved. This is the first thing you’ll want to do before you even make an offer on a house and officially apply for a mortgage. During the pre-approval process, your lender will examine your finances (your income, savings, credit, etc…). When a lender pre-approves you, you will know what loan amount they have approved for you.
In addition to speeding up the entire mortgage process by taking this step ahead of time, having this formal pre-approval (which comes in the form of a letter) can also help when you do make an offer on a house. That is because you will have evidence to back up your offer, and the seller will see that you are, in fact, able to buy their house. For this reason, a seller may be more inclined to go with a buyer who is pre-approved over a buyer who is not. Since they want to sell their home as fast as possible, sellers don’t want to deal with a sale falling through because the buyer couldn’t actually get a mortgage for the price they offered.
One thing to know is that there is a difference between a pre-approval and a pre-qualification. They are not the same. The former means your finances have been reviewed and verified, and the latter means they have not. Pre-qualification is simply a loan estimate from the lender, while pre-approval means the lender has actually approved you for a specific amount of money.
Once you find your dream home and make an offer, you will need to submit your official mortgage application. The good news is your finances have already been reviewed during pre-approval, but there is still more work to be done. Once your application has been submitted and all additional documents have been received, processing and underwriting start. More on that later...
Once your mortgage application has been submitted and before the lender can give you a loan, they will require an appraisal to know what the home is worth. What you pay for the home won’t necessarily match its value. Cost and value are two different things. That’s what the appraisal is for. The appraisal is an objective estimate of a home’s value determined by a trained professional who evaluates the home and establishes its value based on condition, comparable homes, the housing market, etc... A mortgage may be denied if the purchase price is higher than the home’s value, as determined by the appraisal.
Now that your appraisal is done, underwriting is the next step. This is the part of the process that takes the longest, as the lender examines everything with a fine tooth comb and determines how risky it is to give you a loan and how likely you are to pay it back. The underwriter has the final say on approving or denying your mortgage. Please note: underwriting happens even if you have been pre-approved.
In reviewing everything, they may need more documents from you, or they may have questions for you. Missing documents, unanswered questions and questionable, sudden bank activity, such as a large deposit without an explanation and documents, can cause delays. To make this step go as quickly as possible, provide all required documents up front and be sure to answer the lender immediately if they reach out to you during underwriting. There can also be delays if there is an issue with your credit or if there are any active disputes on your credit report. Be sure to dispute any errors prior to applying for a mortgage so that everything is resolved in time, or else the process will grind to a halt until it is taken care of. This process can also take longer depending on the underwriter assigned to your file.
Underwriting can take anywhere from a few days to several weeks, so do your part to speed it up by providing all documents and making sure everything is in order with your credit check. But even if you do everything right, there still may be delays out of your control, such as waiting for the IRS to verify tax info or a delay/issue with the appraisal. In these instances, all you can do is bide your time. But you can at least rest assured that you have done everything asked of you.
Once underwriting is complete, you may receive conditional approval or final approval. Final approval means nothing more is needed, and you have been officially approved for a loan. Conditional approval (which can happen in just a few days) means that there is a condition that needs to be met (such as needing another document), which your lender will reach out to advise you of. Once you receive final approval, you are ready to close on the house.
About 8-11% of loan applicants are denied, and it happens for a number of reasons, including:
An Issue with the Home/Inspection. If the inspection turns up a serious problem with the home, such as faulty wiring or structural issues, the lender may see the home as a bad investment and deny the loan.
Low Appraisal. Lenders will not give a loan for more than a home’s value. So if a home is sold for more than its appraised value, the buyer will either need to negotiate a new price, abandon the purchase altogether, or pay the difference. Otherwise, the loan could be denied.
Low Credit Score. If your credit score is too low, the underwriter might see you as too much of a risk for a loan. If you make payments late and don’t pay in full, that could indicate to them that you will not be a reliable borrower.
High Loan-To-Value Ratio. The LTV ratio indicates how much of your home’s value you are borrowing and directly impacts your loan eligibility and likelihood of getting approved. If it is too high, the underwriter will see you as high risk.
High Debt-To-Income Ratio. Your DTI ratio is a percentage that determines how risky it is to give you a loan and tells lenders how much of your income goes toward your debt. If your DTI ratio is high (above 50%), lenders may think you can’t take on more debt and can’t afford a mortgage.
Change in Employment Status or Unstable Employment History. Lenders want to give loans to people with a stable income who can pay the loan back. If you are recently unemployed or have a history of unsteady employment, the underwriter may doubt that you can reliably make your monthly loan payments.
Unusual Bank Account Activity. Unexplained major expenses or sudden windfalls could be a red flag to underwriters and will make them question if you can reliably save and where the money suddenly came from, respectively.
Insufficient Savings/Income. Lenders want borrowers who can afford to pay them back. If you don’t have enough income or money saved, your application may be denied.
History of Missed Mortgage Payments/Credit Issues. Missed/late payments, collections accounts or a previous foreclosure tell the lender that you have a history of not repaying loans. This is a red flag that may cause the underwriter to deny your loan for being too high risk.
No/Missing Documentation. The underwriter will need to see documented proof of your income, funds and assets. If they cannot verify your income or if you cannot provide missing financial documents, your loan will likely be denied. If documents are missing, your underwriter could also suspend your loan until you can provide the outstanding documents.
The Bottom Line
So how long is mortgage processing? As explained above, that answer depends on your lender, your unique situation and when you submit your application. But you can expedite the process by getting pre-approved and giving your lender all the required documents upfront. Ruoff Mortgage has one of the fastest mortgage processing times in the industry, at just 17 days. We know the wait is hard. But in the long run, when you’re sitting in your new home and looking back on the process, this time will just be a blip.