When you’re refinancing your mortgage, timing is everything.
Once a lender offers you a rate, they only give you a certain amount of time in which to take advantage of it — a period called a “lock.” Locks come in 15-day increments. The shortest is 15 days, followed by 30 days, followed by 45 days, and so on. Shorter locks generally mean better rates, while longer locks mean higher rates.
If you’ve found an amazing interest rate with a short lock period, you’ll want to make sure things go as quickly and smoothly as possible so you don’t lose that fantastic deal. Here are the best ways to speed up the mortgage refinance process so you can take advantage of lower interest rates.
Be Honest on Your Application
You may be tempted to omit some debt on your application in order to get approved for a larger loan. Don’t do it. Lenders will find out if you’re withholding information about debts, and the ensuing paperwork will slow down the process. Avoid the headache now and be forthright about all of your finances.
You do not, however, need to disclose all of your assets. In fact, Casey Fleming, mortgage adviser and author of The Loan Guide: How to Get the Best Possible Mortgage, cautions against it if you want the process to go quickly.
“Typically, [you only need to disclose] enough to pay for all closing costs, plus a little more than three months of reserves,” Fleming advises. One month of reserves is the sum of the principal, interest, taxes, insurance, mortgage insurance, and any HOA dues you may incur with your new property.
“Providing more assets than this just gives the underwriters more paperwork to plow through and more opportunities for more questions,” Fleming says. “It is not considered fraudulent to understate your assets.”
Know How to Access Your Paperwork and Return Documents Quickly
Because each individual’s situation is different, it’s very hard for borrowers to know what paperwork they will need to include in their application before applying. Fleming does, however, recommend knowing how to get necessary paperwork should it be requested. This includes knowing how to print out e-statements from financial accounts and obtaining copies of pay stubs and deposited checks.
Throughout the process, you will be asked to submit additional supporting documentation, along with signing and returning new documents issued by the financial institution. This is one of the biggest things that slows down mortgage refinances, and it’s completely in your hands. Return all requested paperwork expediently.
Stay at Your Current Job
If you’re thinking of making a career move, hold off until you close. Stability is a big deal when lenders are making their decisions, and switching employers before closing could negate the entire deal.
Don’t Take on New Debt
If you’re looking for a fast refinance, it is wise to stop taking on new debts 60 days before you apply. It can take this long for lenders to report new loans to the credit bureaus. If your new loan doesn’t appear on your credit report, the financial institution issuing the mortgage refinance will have to get in touch with the credit bureaus directly, which costs both additional time and money.
Note: Taking on new debt, even prior to 60 days before your application, can temporarily reduce your credit score. This can affect the interest rates you are offered or even keep you from qualifying.
You may think you’re golden after you have been approved, but that simply isn’t true. Your lender will pull your credit report on the day of closing, enabling them to see any new debt you’ve taken on since they approved your application. Don’t do anything that would change your debt-to-income ratio.
Find a Lender Who Uses Appraisal Waivers
In the past, common industry advice instructed borrowers to schedule their appraisal as soon as possible, and to keep their own schedule flexible so they could accommodate that of the appraiser. Because physical property appraisals take a long time, this was one of the best things you could do to speed up the process.
However, technology is now offering better and quicker options both for the lender and the borrower.
“More and more automated approvals are requiring only an automated valuation — a software-generated estimate of value,” says Fleming. These valuations are similar to Zillow Zestimates, but they are more accurate as they are based on more data points. “This is commonly known as an appraisal waiver. It is faster and, of course, cheaper than a real appraisal.”
Fleming says that the cost of a typical home appraisal would likely run somewhere between $400 and $500, though he notes these numbers can vary depending on region.
“Appraisal waivers used to be $75,” says Fleming, “but I understand that Fannie [Mae] is experimenting with waiving the appraisal waiver fee.” That means that the appraisal waiver is potentially free to your financial institution.
Not all lenders use appraisal waivers equally. Before applying, you can ask different lenders what percentage of their loans were approved with appraisal waivers in the past 12 months. This can help you identify lenders who will save you a lot of time during the appraisal process.
If you can’t find a lender with competitive rates who also uses appraisal waivers, stick to the old advice and book your appraisal as early as possible.
Refinances Will Move Faster This Year
If you applied for a mortgage refinance in 2016, you probably noticed that the process took a long time. There was a reason for that.
“Interest rates stayed much lower than expected,” Fleming explains. “The purchase market is not highly sensitive to interest rates, but the refi market is. Purchase applications were about as predicted [in 2016], but the refi market was much larger than anticipated.”
Because interest rates stayed so low, more people applied for mortgage refinances. Financial institutions weren’t expecting the increased demand, so many found themselves severely understaffed.
In 2017, Fleming doesn’t predict the same problem. In fact, he anticipates that mortgage refinances will close much more quickly.
“With rates up about 0.5% or more from the lows of last year, it is estimated that 25% to 50% of the refi market is no longer viable,” says Fleming. “It no longer makes sense for [many homeowners] to refinance. So, in 2017 the purchase market will stay about steady, while the refi market will drop precipitously.”
That means staffing should not be an issue and lenders will be eager for your business. The entire process is anticipated to move very quickly in the new year, which is good news for those securing competitive interest rates with short lock periods.