4 Big Reasons Why Mortgages Take Soooooooo Long to Close

You’ve been saving up for your dream home and wistfully scrolling real estate listings, searching for the perfect fit. All that planning, saving, sacrificing, and digital-3-D-home-tour-taking is finally paying off. You’re ready to make an offer, plant a stake in the ground on your new property, and live happily ever after. But wait a minute, you suddenly wonder — how long does it even take to close on a home purchase with a mortgage? How long will you be on this wild ride? And once you learn what’s up: Why does closing take so long?

Unfortunately, getting a mortgage can take a long time — longer than you might think.

We talked to Jessica Sanchez, Head of Mortgage Operations at HomeLight, to walk us through why exactly the mortgage takes so darn long, and what you can do to speed up the process.

Why does closing take so long? Mortgage vs cash

According to the latest homebuyer data, buying a home with a mortgage takes an average of 48 days for purchases and 57 days for refinances. A cash sale, on the other hand, can close in one to two weeks.

But why does a mortgage take so much longer?

“The lender has to do a lot of due diligence on both the borrower and the property before they can close on the loan and wire the money,” shares Sanchez.

“We have to ensure that the property appraises, and that it isn’t rotting and termite-infested and falling down. We have to ensure that the borrower is employed, that their income is viable. We have to verify down payment assets. And all of those things take time,” she adds.

When you’re a cash buyer, the transaction is a lot simpler. You simply show proof of funds with your offer, and provided everything goes normally, you wire the money when it comes time to close.

With cash, due diligence falls squarely on the buyer. It’s up to you to make sure the property is in decent condition and worth what you’re paying for it. For that reason, it can be a bit riskier to purchase a home in cash — but it’s also nearly guaranteed to be faster.

Applying for a mortgage

What’s involved?

When you apply for a mortgage, you’re allowing the lender to probe into your financial history. You’ll need to submit to a credit check and be ready to hand over quite a few financial documents to your lender so they can determine your creditworthiness.

These days, almost every lender has an online experience where you can apply for a home loan, consent to a credit check, and upload your financial documents for review.

How long does it take?

It should take you around 30 minutes to fill out an online mortgage application — that is, provided you have all your documents in order. Preparing the documents could take minutes or days, depending on how organized you keep your finances.

How to avoid a delay

“Any buyer who’s ready to apply for a home loan should talk to a loan officer ahead of time before even starting the application to obtain a list of documents you need to gather,” Sanchez advises. “If you do that proactive work ahead of time, the filling out of the application is going to be a lot quicker for you.”

Reviewing a loan application and offering preapproval

What’s involved?

After you’ve submitted your application with all its documentation, the ball is in the lender’s court. They’ll need to go over your documentation with a fine-toothed comb and make sure everything is complete, legible, and correct.

If there are any errors, missing documents, or inconsistencies, then you can expect to hear from the lender, who will request any necessary follow-up documentation to straighten out the confusion. Once they have everything they need, the lender should make a decision about whether they’ll agree to preapprove you for a mortgage loan, and how much they’re willing to loan you.

Sanchez says buyers who come into the application process prepared tend to hear back from their lender quicker.

How long does it take?

A standard lender can take anywhere from three to five days to get back to you once you’ve completed your application. However, Sanchez explains, that doesn’t necessarily mean they’ll have a decision ready for you.

“Getting back to you can mean they approved you for a loan, or they’ll come back after three to five business days and say, ‘Oh I need more information from you,’” she says.

If you happen to be missing documents, it could set your pre-approval back days, or sometimes even weeks.

This hurry-up-and-wait can cause frustration for a lot of buyers. Lender wait times can pile up, especially during busy seasons.

During high volume times for the mortgage industry — such as the current coronavirus refinance boom — lenders become strapped for resources, and quick communication is often the first thing to go.

To compound buyer frustrations, Sanchez says many lenders barely review your application upfront when you apply.

“Not every lender does a full-fledged review of the buyer upfront,” she explains. “They just have the loan officer review your pay stubs and your bank statements and run your credit through, and say ‘Yeah, this looks good — you’re pre-qualified for $500,000. Go shop for a home!”

It’s only when the buyer actually goes under contract on a home that the underwriter looks at the file for the first time.

This approach can spell trouble for buyers because underwriters are the people who actually make the decision about whether or not to extend you a mortgage loan.

At the very least, you’ll likely be hit with a ton of document requests once you’re under contract.

In the worst-case scenario, the underwriter could find an error or discrepancy on your application the loan officer didn’t see, and you won’t qualify for the loan.

How to avoid a delay

You don’t have to be at the mercy of your lender’s timeline — provided you choose the right one.

Some lenders provide what’s called an upfront underwrite, meaning they have an underwriter review your application and vet your financials before issuing a preapproval.

An upfront underwrite makes your offer stronger and gives you the confidence that your loan will be approved once you’ve had an offer accepted on a house. Plus, it saves a lot of valuable time, and you can avoid some frustrating back-and-forth with your lender.

Make sure to ask prospective lenders if they do an upfront underwrite, and how long it takes to get a preapproval decision. You can also ask if they guarantee to close within a certain timeframe.

Underwriting the loan

What’s involved?

Underwriting is the process of evaluating your file and making the final decision on your loan. Underwriters also help process the loan from start to finish.

“Underwriting has milestones. It’s not just one process for underwriting,” Sanchez explains.

“The underwriter touches the loan at various milestones throughout the life of the loan and getting it all together.”

This includes everything from gathering title paperwork to getting the appraisal back to getting updated pay stubs from the buyer when it’s closer to closing time.

Here’s a non-exhaustive list of the different “milestones” the underwriter will hit over the course of your loan:

• Reviewing your finances and deciding whether the mortgage company can safely lend the money
• Preparing the Loan Estimate and the Closing Disclosure
• Gathering the title paperwork
• Ordering the appraisal
• Confirming the buyer gets homeowners insurance
• Collecting and reviewing all your documents
• Requesting any missing documentation, information, or signatures from the buyer
• Reviewing your file at multiple touchpoints to ensure everything is perfect

How long does it take?

The turnaround times for underwriting vary drastically from lender to lender, depending on what the underwriter has on their plate.

“The underwriting process itself is not lengthy,” Sanchez reveals. “It just depends on how many other loans an underwriter is working on and where your loan is in line. Underwriters are working on many loans at one time.”

She adds: “For me, it really only takes me an hour to review a full-fledged file. But from a borrower’s perspective, you’re not going to hear back in an hour because the underwriter has to review five other loans.”

All told — when you take into account each of the various milestones of underwriting — Sanchez says processing the entire loan usually takes around 21 to 30 days.

How to avoid a delay

A buyer’s best defense against underwriting delays? Be prepared with any documents your lender needs and quick to communicate with them.

Many buyers find themselves frustrated when the lender keeps requesting the same (or sometimes similar) documents. The back-and-forth can take days, especially when you miss something crucial in a document, or make errors — even minor misspellings can hold things up.

Keep all your financial documentation organized and available for follow-ups from your lender. Having everything you need together in one place will keep these requests quick and keep you on track with your closing timeline.

Read and re-read all documents you send to your lender for errors. And when the lender makes a request, try to get back to them quickly. The quicker you get all your perfectly prepared documents in, the quicker you’ll close.

Confirming the appraisal price

What’s involved?

When you take out a mortgage, you’ll first need to clear a pretty big hurdle: the appraisal. That’s when a neutral third party researches your prospective home and all its features and looks at comparable sales in the area to determine its fair-market value.

Appraisals are required by mortgage lenders so they don’t loan you more than the home is worth. But really, the appraisal process protects both you and the lender.

Unfortunately, the appraisal is also a part of the process that can hold the deal up when there are long wait times for appraisers.

How long does it take?

“Right now the industry is suffering from long appraisal turn times for various reasons,” Sanchez explains. “The most notable one is that interest rates are extremely low right now for mortgages, and that’s causing a huge backlog of loans across the country with all mortgage lenders. This refinance boom is creating this backlog of business.”

That backlog means that currently, appraisals are taking around 30 days. But how long an appraisal takes depends highly on your area.

A small town may only have a few qualified appraisers, so things can take longer. In busy city markets, appraisals can be quicker. (That is, depending on demand.)

How to avoid a delay

If you’re getting a home loan, skipping the appraisal isn’t exactly an option. And you’re unlikely to have much control over your appraisal timeline.

The only way to avoid doing an appraisal? Paying in cash.

We know, we know — if you had several hundred thousand dollars lying around, you probably wouldn’t be reading a blog post about mortgages just for fun. But the good news is, you don’t necessarily need several hundred thousand dollars lying around to make a cash offer!

With HomeLight Cash Offer, we put up our cash, buy the home for you, and you can buy it back from us when you secure a home loan (Note: you can’t skip the appraisal when you get your home loan, but you’ll be able to make a more competitive offer and win your dream home much faster!).

Simply apply for HomeLight Cash Offer, and we’ll do that aforementioned upfront underwrite within 24 business hours to give you a decision. Then find a home, and we’ll make a cash offer. Closing is still going to take some time … but with the home already secured with HomeLight’s cash, it should be a lot smoother for you and everyone else involved.

Header Image Source: (Elle Aon / ShutterStock)