Avoiding Loan Delays: How to Keep Your Loan From Being Derailed
The decision to purchase a home is a big milestone in life. Whether you are transitioning from renter to homeowner or are a current homeowner moving to a new house, there are several steps you need to take in order to obtain a loan and finalize your mortgage.
Thoroughly preparing for this multistep process will help you get through it quickly and smoothly. Use this article as a guide to help you prepare for and stay on track when getting a mortgage.
Top reasons home loans are delayed
The average time to close a loan is 42 days, according to the most recent report by Ellie Mae. Because that’s a considerable amount of time — over a month — it’s important to do what you can to avoid any further delays in the loan process.
In most scenarios, loans will not get derailed if you have a good loan officer and if you come prepared.
“You want the loan officer to be asking you questions frequently,” said Carter Campbell, a mortgage loan adviser with ALV Mortgage in Salt Lake City. “If he/she is asking a lot of questions it means they have foresight into what could actually come up.”
However, even if you have a good loan officer and are prepared, there are times when situations arise that neither you nor the lender has control over. So, what are some of these situations?
The underwriter takes more time than estimated
When obtaining a loan, the lender will work with the underwriter to get an estimated timetable of when the loan will be finalized. From there, the lender will give the client the estimated timetable so they can know what to expect during the process. While the client will have a general idea of the timetable, there may still be delays.
“If an underwriter takes four days to review a file when they typically take two days, it can be frustrating, but there isn’t a lot you can do except prod them,” said Mitch Mills, broker and owner of Mitchell Mortgage in Salt Lake City. You might encounter the same thing with an appraiser, Mills added. With so many people taking part in the process, you’re sometimes at the mercy of others’ schedules.
You have not provided the lender with all necessary paperwork
The lender cannot get started on the loan without the most accurate and up-to-date paperwork. To avoid delays, get your lender all of the necessary paperwork such as photo ID, tax returns, pay stubs, W-2s, bank statements and credit history documentation. If you have a thorough loan officer, they will make sure you know exactly what they need and when they need it to keep the loan on track.
You have not provided the lender accurate information
Another scenario that can cause loan delays is not providing all information or the most accurate information to your lender.
Mills recalled a time a borrower told him he did not have schedule E income, but when Mills got tax transcripts from the IRS, they included a schedule E filing. Because the borrower did not provide accurate information upfront, Mills and the borrower had to go back a step and ensure all of the paperwork was correct. Such a situation can cause loan delays.
“Sometimes, you have to roll with the punches. But, if you’re more prepared going in and are quick to take control over the things you can control, you’re in a better position,” Mills advised.
Now that we’ve looked at common situations that derail home loans, let’s look at some things you can do to save time getting a mortgage loan and avoid further delays.
7 things you can do to save time getting a mortgage
1) Plan ahead
As with most situations in life, being prepared ahead of time is beneficial. Purchasing a home is no exception. When you start looking at homes to buy — even if you don’t have the intent to purchase immediately — it’s smart to determine your budget, assess your finances, get your assets and paperwork in order and begin conversations with a mortgage broker or lender.
“Put together a game plan before you’re even planning on getting a mortgage,” said Campbell.
2) Get preapproved for your loan
There are two steps in figuring out what sort of mortgage terms you might qualify for: prequalification and preapproval. Getting prequalified for a loan is the first step as you consider homeownership and start house hunting. Prequalification is an informal process that allows you to start assessing different mortgage options.
As you become more serious in your journey toward homeownership, consider getting preapproved for a loan. Preapproval for a loan lets you know what amount a lender will lend to you, even if you don’t have a specific home in mind.
“Prequalified would be a consumer telling me their income, credit score, other monthly debts, etc,” said Mills. “A preapproval would be when they provide all of the actual documentation.”
By getting preapproved for a loan, you’ll have a more thorough understanding of how much you can spend on a home, which can help influence your house hunt. You’ll also have already started the loan process, which can show sellers you’re serious and save you time in the long run.
3) Obtain necessary documents early
To keep your loan on track, it’s crucial to gather all of the necessary documents well in advance. These documents include:
- Proof of income and employment for at least 30 days
- Tax returns
- Bank statements
- Schedule C or Schedule E (if self-employed)
- Documentation on spending habits, such as credit card or bank statements
- Documentation on debts owed
- Proof of ownership of any property owned
- Credit score (the lender will pull a full credit report)
“Something that can cause delays is the borrower’s employer not verifying employment quickly,” said Campbell. “Sometimes we have a hard time getting a hold of the employer. One thing I suggest is talking to your HR department ahead of time, letting them know what is coming and making sure they will be responsive.”
If you’re paid on commission, keep in mind that you’ll likely have to provide more pay stubs compared with someone in a salaried position. Because commission income varies month to month, the lender will need to see a longer history of pay, according to Campbell.
4) Check your credit score
To ensure your loan stays on track without major delays, you’ll want to check your credit score in advance. While the lender will check this almost immediately, it’s smart for the consumer to see what their credit score is going to be in the initial loan application.
Because lenders may use one of any number of credit scoring models when evaluating mortgage applications, you may not know the exact score a lender will see, but all major credit scoring models give significant weight to the same categories. Checking your credit score should give you a good idea of where you stand.
5) Get an inspection and an appraisal
Because purchasing a home is such a momentous financial decision, it’s smart to get an inspection on the home you’re considering buying. An inspection will give the potential buyer an in-depth look at the condition of the home. Inspections can save you time in the long run because you’ll know how much or how little work needs to be done on the home in question.
While home inspections are optional, appraisals are not and are a standard part of the loan process. Appraisers will assess the home and property you’re about to purchase, and ensure the property is truly worth the asking price. Home appraisals are coordinated by the lender, according to Mills. An appraiser will assess the home you’re looking to purchase and provide an unbiased assessment of it.
6) Look into title insurance and homeowners insurance ahead of time
One of the final steps in the loan process is obtaining title insurance and homeowners insurance. Title insurance protects the future homeowner from any faults or inaccuracies in the title of the home and guarantees the title itself goes to the homeowners.
“Title insurance is a requirement for any mortgage loan so it will part of any transaction that involves a mortgage loan,” Mills explained.
Some states allow homebuyers to shop around and compare pricing on title insurance. However, some states have a set price. If your state allows you to shop for title insurance, you can save time in the loan process because you’ll have a company in mind and you can immediately get the insurance when you’re ready to close on the loan.
Another way to stay ahead of the game is to have a few homeowners insurance companies in mind.
“Know a couple of insurance companies or find a broker ahead of time that you can get quotes for the new home,” Campbell said. “Considering bundling with your current car insurance company, too.”
7) Be responsive
One of the main reasons that loans can get delayed is lack of communication between the buyer and the lender. If a loan officer needs something, respond quickly to ensure no hiccups in the process.
“We communicate a lot with email,” said Campbell. “Check your email for document requests and respond quickly.”
While certain things are out of your control during the loan process, you can minimize delays by communicating frequently with your lender, preparing in advance and staying organized with your documentation.