How Long Until My Mortgage Closes?
Finding a home and buying it takes quite a few steps. First, you have to locate a place that will meet your needs.
Second, if you are like the vast majority of buyers, you will need to secure financing through some type of mortgage lender.
Third, you will need to make an offer on a home that a seller will accept.
After you and the seller agree to a price, the process of actually closing the loan starts. Listed below are the basic steps along with potential pitfalls that can delay the closing.
The Mortgage Portion
After getting a signed contract with an offer to purchase a home, the contract will be provided to the lender.
The lender will then send the buyer’s full application, along with the real estate contract, to the underwriter.
It is the underwriter’s role to make sure the application falls within the lending guidelines of the chosen mortgage loan. For example, if the buyer is using an FHA loan to buy the home, the underwriter will compare the buyer’s application, credit report, income documentation, and down payment documentation against the rules for FHA lending.
The appraisal will also be ordered on the home after the contract is signed. When the appraisal is completed, it will also be sent to the underwriter.
Actual Days for Closing Process
An annual report called Origination Insight Report, which was published by Ellie Mae, stated that the number of days needed to close a loan was 52 days. This information was published in March of 2021.
This span of days covers getting the contract to underwriting, getting the loan approved by the underwriter, getting the appraisal approved, and getting the title approved by the underwriter.
A general rule of thumb is to expect the closing to take somewhere between 30 and 60 days AFTER the contract is accepted by the seller.
Sitting down at the closing attorney’s office to sign the paperwork and take ownership of the home will take between 1 and 2 hours.
Potential Obstacles that Hinder Closing the Loan
Things that can delay, or stop, the loan process usually fall into one of the following five categories: borrower’s income, borrower’s down payment, updated credit score, home appraisal, home inspection, or the home’s title.
Income
When applying for a mortgage, most loan officers will simply use the figures provided by the borrower and calculate how much the person can afford for a home payment.
The rules for calculating income are very black-and-white for the underwriters. People who have a job that provides a set salary every year are very easy to verify and document. People that have other types of income take a bit more work.
For example, people who are relying on overtime earnings to qualify for a mortgage will need to prove that they get paid extra for overtime work. They also will need to prove that they have earned overtime pay for at least 2 years. If the person has only worked overtime hours a few times in the past few months, or extremely sporadically over the last few years, then they may not earn as much as they think.
People who receive a part, or all, of their income as commission will have a similar requirement. They will need to prove their commission over the last 2 years. The underwriter will likely average the commission over 24 months to determine their monthly income.
Down Payment
Each type of mortgage loan is very clear about how much the borrower is required to pay for a down payment. And the mortgage is clear about where the money is held.
For example, if a borrower wishes to use an FHA loan to buy a home priced at $220,000 the borrower will need to show proof that they have at least $7,150 in liquid assets such as savings, checking, money market accounts, and retirement accounts.
If the borrower in this example is expecting to use their retirement account funds, but that particular fund does not allow withdrawals, then the loan may be canceled because, in reality, the borrower does not have the money for the down payment.
It is a good idea to discuss the down payment funds with your mortgage lender before making an offer on a home. You want to make sure you truly have the right amount and that it can be correctly documented for your specific mortgage.
Recent Credit Report
There is one BIG item to keep in mind when you get pre-approved for a home loan: DO NOT BORROW ANY NEW MONEY UNTIL YOU GET THE KEYS TO YOUR NEW HOME AT THE CLOSING TABLE.
Many people have derailed their purchase of a new home by taking out a loan for new furniture, a newer car, or a new credit card after they were pre-approved for a mortgage loan. The new account showed up on their credit report the day before their loan closing and ruined their debt-to-income ratios.
The underwriter will review your current income and compare it to your current debt payments, along with the proposed mortgage payment. If any of that changes during the loan closing time frame, the underwriter has to review all of the information again to make sure the borrower can make all the payments without causing financial hardship.
Property Appraisal
The biggest concern with the appraisal of the home is if the home is truly worth the agreed-upon price. Although it is not extremely common, the asking price for the house may be higher than the appraised value.
The lender is not going to provide a loan for an amount that is higher than the property’s value. If this happens to you, you will be faced with one of the following scenarios:
- You will have to ask the seller to reduce the asking price
- You will need to pay the difference between the asking price and the appraised value
- You will need to terminate the buying contract and find a different home
Although it may be possible to find a different appraiser that can offer a higher value, the lender may not accept the 2nd appraisal.
Inspection of the Home
If you pay for a 3rd party home inspection, it is not unreasonable for the inspection to reveal some issues that need to be addressed.
Most of the time, the inspection will show that some small items, like a broken windowpane, or a faulty light switch, need to be repaired.
However, if the report shows major problems, like a crack in the foundation, or an infestation of termites, then this could halt the loan entirely until the problem is resolved.
Title Report
Before the underwriter approves the loan on the home, a title report will be ordered and reviewed.
A title report is performed by a local real estate attorney. The report will show the current owner of the property and likely show a list of the previous owners along with dates of the property changing ownership.
The report will detail any liens on the home. In the majority of cases, the liens will be the existing mortgage on the home. This mortgage will be paid off by the sales process and replaced with a new mortgage from the new buyer.
There are cases in which a lien has been placed on the home for various reasons. Past due IRS bills, claims made by construction concerns such as a new HVAC system, a new roof, or other items not paid by the homeowner are also common. If any of these liens appear on the title report that is separate from the existing mortgage, they will have to be paid before the ownership can be changed to the new buyer of the home.
Steps to Closing Mortgage
Here is an explanation of what happens after the loan, appraisal, and title report are approved and it is time to close the loan.
Document Signing
Each lender will have a list of items that need to be signed to close the loan. Most companies will have several disclosures to sign and some of these documents will vary between states.
At a minimum, as the borrower, you will be signing at least the following documents
- The mortgage – This means you are agreeing to use the house as collateral for the loan. It gives the lender the legal right to request that you leave the home and foreclose if the payments are not made.
- Promissory Note – This is the actual loan. This is your pledge to repay the loan, at the indicated interest rate, over the indicated months of the loan.
- The Escrow – This shows the amount of money that will need to be held in reserve for the annual property taxes as well as the insurance policy for the house
- Insurance policy – this is the insurance policy for the home to protect it against fire, floods, and other natural events.
Closing Costs and Down Payment
When the documents are signed, you will then be asked to pay for the closing costs and provide the designated down payment.
Your mortgage lender should communicate with you ahead of time the amount that you will be required to pay. Most real estate attorneys will require that the funds must be paid either with a cashier’s check from your local bank/credit union or you can usually send the money via electronic wire.
Here are some of the common items that are paid by borrowers at the time of a home purchase.
- Home down payment – depending on the mortgage that you are using, you will be asked to pay as little as 3% and as much as 20% of the sales price of the home upfront as a down payment.
- Third-party invoices – The home inspection and the appraisal are performed by agencies that do not work for the lender or the real estate agent but are independent companies. This can also include fees paid for the credit report used to qualify the borrower for the loan.
- HOA fees – if the home that you are buying is located within a neighborhood that is governed by a local Homeowners Association (HOA) then you will be asked to pay the first year’s fees upfront before moving in. The fees may be prorated based on the month in which you buy the home.
- Initial escrow deposit – As mentioned earlier, the lender will most likely require an escrow fund. This fund holds money that will only be used to pay the yearly property taxes and the homeowner’s insurance. There will need to be an initial deposit to this fund to cover the first year of living in the home as well as to prepare for the upcoming annual tax charge.
Depending on your state and lender there may be other fees as well. Your lender can provide you with a detailed list of the items that will need to be paid for your specific loan.
Signing the Deed
After signing the loan documents and paying the necessary closing costs and down payment, you will then sign the deed to the home. The closing attorney that handles your loan closing will then file the deed at the appropriate county courthouse, showing you as the new owner.
At this point, you should expect to receive keys to the new home either from the real estate agent or from the seller of the home.
Summing Up Time Needed To Close on a Loan
Between the underwriting process, the appraisal of the home, a title search of the chain of ownership, and a home inspection, you can see how the home-buying process can take time. All of these tasks are handled by different people, working for different companies, that have their own set of business practices and schedules to manage.
For this reason, this is why it usually takes around a month, or a little more between signing the contract to buy a house and getting the keys to open the doors to your new home.
About the author: This article on “Timeline For Closing on a House” was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of their social media profiles as well as generate new leads from his website.
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