If you want the lowest mortgage rate possible on your next home loan, be ready to close quickly. The quicker you close (in general), the better your loan terms will be.
Why is that? It's because of how banks manage "rate locks."
What is a rate lock?
A rate lock is a bank's commitment to give you a specific interest rate on your mortgage for an agreed-upon number of days. It's a contract between you and the lender in which the lender says, "So long as you close on this mortgage during our commitment period, we guarantee this mortgage rate to you."
This is why 60-day rate locks are often more expensive than 45-day rate locks. A lot can go wrong in those extra 15 days.
Close quickly and get better mortgage rates
As a loan officer, I can tell you that borrowers who close on their loans quickly get the better mortgage rates. And although you can't tell your underwriter to "hurry up," you can follow these three steps to ensure your loan closes faster:
1. Return your initial loan disclosures within a day
Every closed loan begins with a set of initial disclosures--a combination of federally- and lender-required documents detailing your loan terms and the responsibilities of both parties in the transaction.
The initial disclosure packet contains your loan application, among other documents, and can run as thick as 40 pages, depending on your loan type. FHA packages tend to be larger than for conforming mortgages.
The paperwork can be overwhelming, too. There's complex terminology and a lot of numbers on those pages. Yet, as the borrower, you're expected to sign and understand what you're signing.
Keep two things in mind here:
- These are your initial loan disclosures--not your final ones. There may be small errors.
- Your lender is available to explain what you're signing.
You'll also note that your Rate Lock Agreement is included in the packet. If your rate is locked, the clock is ticking. Therefore, review and sign your initial loan paperwork as soon as it arrives. If you need a walk-though, call your lender.
Bonus tip: Many lenders now send disclosures via email. This will save at least one day in transit time. You can save two days or more if your lender allows you to email the disclosures back.
2. Return your "supporting paperwork" within 72 hours
Around the same time that you receive your initial disclosure packet, your lender will make a request for your "supporting paperwork." These items include a W-2, bank statements and federal tax returns.
While you're likely to have these items on hand, not every supporting document is easily accessible.
As part of the underwriting process, you may be asked to provide canceled checks, employment agreements and proof that a given collection has been satisfied. It's going to take some extra effort to locate these items, especially since you're racing against the clock.
Bonus tip: When you're collecting supporting documentation, don't send it to your lender until you have all of it (unless you're told otherwise). Paperwork is easier to keep track of when it's sent as one, big stack.
3. If your home must be appraised, schedule the appraisal ASAP
With the notable exception of the FHA Streamline Refinance, home appraisals are required on nearly all purchase and refinance transactions. And like most of the steps in mortgage processing, appraisals are a "human" task.
As such, appraisals take time.
In a typical market, barring no issues, five days pass from the date of appraisal order to the appraisal completion. That's five days off your rate lock, too, because an underwriter rarely begins to underwrite a loan before its appraisal is completed. However, not all appraisals are typical.
A unique property, for example, or a home in an area with few sales, may take longer for an appraisal. It's best to get a head start on the process. As soon as your phone rings, take your appraiser's first available appointment.
Bonus tip: In a refi boom, appraisers are in high demand. Turnaround times can stretch to 10 days or more. Therefore, schedule quickly.
Schedule your closing
Once your loan is approved, you'll need to schedule your closing.
Closings can be scheduled at all hours of the day, but you'll need to coordinate with your lender first to find a mutually convenient time. Also, it can often be more difficult to get a slot with a settlement agent at the end of the month, so be as flexible with your time as possible.
The sooner your schedule your closing, the sooner your loan will fund, and when your loan funds, your rate is "committed."
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Dan Green is a loan officer with Waterstone Mortgage in Cincinnati, Ohio, and the author of the nationally recognized mortgage blog, http://TheMortgageReports.com. Dan writes loans in most states, and speaks to national audiences on mortgages and technology. Follow him on Twitter at @mortgagereports.