Closing On Time
Failure of lenders to close on time frustrates many borrowers. This failure to close on time can be found in our summary of frequent borrower complaints. Many reasons account for delays in closing on time. But home buyers can be hardest hit when closing delays occur. Purchase contracts have deadlines for financing and closing. Missing those deadlines can create significant costs or financial losses for buyers. In a very competitive market, buyers may fool themselves into being able to close quickly
In the current market, a number of closings have occurred for cash. Those cash buyers aren’t taking out loans, so they don’t factor into data for the time to close a loan. What is a reasonable time to close a loan today?
Loan Closing Times
According to ICE Mortgage Technology, a company which tracks loan data, the aver closing time in June was 49 days. This fell slightly from May’s time to close of 53 days. These numbers fall in line with averages over the past 10 years or more. A breakdown of what types of loans closed paints a slightly different picture. Refinancing loans made up about 53% of loans and the time to close a refinance fell from 55 days to 48 days. The time to close a purchase loan rose one day from 50 to 51 days.
Let’s break this down. You already own a home. You already should have all the documents needed to close as outlined in Winning Mortgage, Winning Home. But it took more than a month and a half to close. Likely, the majority of those refinancing were not fully prepared for the loan process, even though they had been through the loan process before!
Purchase loans took almost two months. There can be many more reasons a purchase loan proceeds more slowly than a refinance. However, lenders generally prioritize these over refinancing due to the possible negative ramifications for a home buyer from loan and closing delays. It is also likely many of the home buyers were unprepared for the full mortgage process.
Ramifications
More importantly though, the Ice Mortgage Technology samples and estimates the closing rate. The closing rate represents the percentage of loans started which closed within 90 days. The closing rate was about 75% in June. The closing rate for refinances and purchases didn’t differ materially. So 1 out of 4 mortgage applications didn’t make it to closing. Possibly, borrowers applied to more than one mortgage. Other possibilities are buyers backed out of purchase contracts. Perhaps borrowers found they were denied.
Both buyers and refinancers may “lock” in an interest rate. Many lenders only lock the rate for 30 days. Some will lock for 45 days. The longer the interest rate lock period, the higher the rate. A 60 days lock will cost you a little in the interest rate. But what happens if you go past your lock in date? A delay past a lock date may be costly, very costly!
Loans by Loan Type
Once again, conventional loans dominate the type of loan made. Conventional loans comprise nearly 4 out of every 5 mortgage loans made. FHA, at 11 percent, and VA, at 7 percent, represent more the first time, lower credit, lower down payment borrower. It’s not true across the board, but more typical. While conventional loans split nearly evenly between refinancing and purchase loans, FHA/VA loans predominantly went to buyers. Once one has an FHA loan, refinancing to a conventional loan later can be a smart move, especially since FHA mortgage insurance premiums never die.
For more certainty of closing on time, follow the path and steps outlined in Winning Mortgage, Winning Home.