Low Rates Slow Lenders Down
There are very few people complaining about interest rates plummeting to near historic lows in July of 2016.
Any time interest rates drop, we see a slow down in the time it takes to get a loan through the entire process from open to close.
Today, we are seeing loans taking an extra two to three weeks long than usual to make it through the process.
An experienced lender and real estate agent will know how to accommodate for these delays, and set expectations so that everyone is not wondering why all the delays.
The drastic interest rate drop has caused loan applications for refinances to surge as homeowners scramble to reduce interest rates, monthly payments, remove mortgage insurance, or take cash out to consolidate bills or home improvement.
It is common in this type of market, that lenders are not staffed to handle such a quick jump in production volume. Hiring underwriters and processors is tricky because there is a learning curve that each lender will have depending on the software and systems they have in place.
Purchases Pick Up
A severe drop of interest rates does not affect new purchases as quickly as it does refinance application. Purchase loan applications are rapidly picking up as homebuyers recognize that we may have a perfect storm of moderate home values, and low interest rates.
Throughout California, homeowners have seen steady increases in home values in most areas, with values cooling off a bit in other areas. With rates dropping, buyers are pouring into the market, creating more demand and pushing home values higher.
Homeowners that purchased between 2008 and 2012 have realized a pretty significant increase in equity, and in many cases, are taking advantage of this market to cash out of first homes with a large down payment on a new home.
How Long Will it Take?
Most lenders will prioritize purchase loans that typically need to close in 30 days or less. You may find that you lender is encouraging 45 days escrows on purchases, but most will still try to complete the loan approval process in 30 days or less.
If you are using City, State or County buyer assistance programs that require prior approval form the assistance provider, you may need to set your expectation closer to 45 days or longer.
Speak to your lender that has you pre-approved or a purchase money loan before you make an offer with your real estate agent. Another smart thing to do is to get your agent and your lender on the phone together to discuss expectations for approval times and closing deadlines.
If you are trying to refinance, you are likely to be asked to expect longer processing times since there is not as much of a sense of urgency once you lock in your interest rate.
How You Can Speed Up Processing Times
Lender turn times are subject to staffing, volume and how quickly they can act to accommodate a surge in business, and these are the timelines that you as a borrower have no control over.
You have the ability to either speed up turn times, or slow down turn times depending on how responsive you can be to lender requests for the supporting documentation required by the lender to process your loan approval.
Lenders have to ask for a lot of paperwork from you to even start the loan approval process. The quicker you can get that paperwork to your loan officer, the quicker they can get your documentation to an underwriter for review.
Getting all of your documents to the lender at the same time is another way you can speed up the process. Sending incomplete or sporadic paperwork will cause delays that might cause more complete loan files to be processed in front of yours.
Locking in Your Low Rate
Talk to your lender about the best strategy for locking in your interest for a long enough period of time so that you do not run out of time, and possibly cause your rate cost to increase.
As a lender, we are offering discounted terms on rate locks longer than 45 days so that borrowers have the ability to lock in low rates for a longer period of time.
Keep in mind that everything we are talking about here is about preparing for anything that comes your way. Your lender may not experience slow processing times, or might not be willing to admit to slower approval times, and in either case, you want to protect yourself and your interest rate.