A loan can take anywhere from 4 to 6 weeks from start to finish. What if you need to close faster? There are ways to make it happen. Some of it lies on your shoulders. Other factors lie on third parties, including the seller, if you are buying a home. The seller controls when the appraisal is completed and the appraiser controls how long the report takes. Title work may also play a role, especially if issues pop up during the title search. Outside of these things, you have some control. Knowing how you can speed things along can help you get to the closing table faster.
Prepare Your Credit
It’s no secret that good credit goes a long way. The fewer hiccups you have in your credit history, the more likely a lender is to approve you. If you do have past issues, it slows things down. Lenders take the time to investigate what happened. Why did you claim bankruptcy or pay your mortgage late 3 months in a row? These are obviously just examples. They want to see if there is a pattern of negative financial behavior before they lend you new money.
Taking the time to prepare your credit long before you apply for a mortgage can help. Start by making sure you make your payments on time. Next, take inventory of your current debts. Are your credit card balances close to the limit? Work on paying them down. This helps your debt ratio as well as your credit score. The lower your utilization rate, the better your credit. Your utilization rate is the amount of outstanding debt compared to your total credit limit. Aiming for a 20% maximum ratio with your total credit card debt/limits is best.
Get Your Affairs in Order
Getting your affairs in order is a must as well. This means your paperwork. Lenders need to see proof of everything you claim. Income, assets, and even proof of paid off debts may be necessary. At the very least, you’ll need 2 paystubs and last 2 years’ W-2s to prove your income. In some cases, you may also need your tax returns for the last 2 years. If you work for yourself or are paid commission, you may need to provide these documents.
You will also need at least 2 months’ of bank statements. The lender needs all pages. If it says pages 1 of 7, for example, provide all 7. This lets the lender see your debits and credits throughout the month. They aren’t looking at what you spend on a daily basis. Instead, they look for large payouts or deposits. They may inquire about these. Deposits are a special area of concern. A large deposit could mean you borrowed money from someone to secure the loan. Lenders will ask for proof that the funds are yours. If the funds are borrowed, the lender must add the payment to your debt ratio. This could affect your loan approval.
If a relative does give you money as a gift, you will need a paper trail. You will also need a loan that allows gift funds. Most government-backed and conventional loans allow the use of gift funds. Talk to your loan officer about the requirements before acting, though. At the very least, you’ll need a gift letter, proof of receipt of the check, and proof of deposit.
If you have any special circumstances such as divorce, foreclosure, or bankruptcy, have the court decrees handy. The lender may or may not ask for them. Having the documents ready will help you move the process along faster.
Find a Lender You Work Well With
Once you have your documents and credit in order, it’s time to find a lender. There are two aspects of finding a lender. First, you need one that will work with your situation. There are hundreds of lenders out there, so that shouldn’t be too hard. If you aren’t the ‘typical’ borrower, you may need a lender that keeps loans on their own books. There are plenty of them out there.
Something else to consider, though, is how well you work with the lender. Sometimes personalities just don’t work well together. This won’t help you get your loan closed faster. You need a loan officer that you have a good rapport with and that understands your need for a speedy closing.
Once you have a lender you like, get that pre-approval. This helps you know what you qualify for and what you must provide. The pre-approval is not a guarantee for funding, but it does help move things along. The pre-approval will be accompanied with conditions. These are things you must clear before you get to the closing table. Knowing them ahead of time can help you prepare. When you find a home, you can already have your documents ready. The rest of the approval will rely on the appraisal and title work.
Be honest with your lender! Don’t try to hide anything that may affect your loan approval. When you talk to the loan officer, you aren’t talking to the underwriter. You can run situations past your loan officer to see what he thinks. There may be things that make you think you’ll never get approved that he doesn’t see as a big deal. Remember, he does this for a living. He sees similar situations and probably those even crazier than yours.
The worst thing you can do is wait until your ‘secrets’ come out. Then the lender has to do some digging. They may want to see what else you may be hiding. Honesty is always the best policy. Even if you don’t think it’ll have an impact on your loan, spill the beans. The more you let the lender know, the more prepared you can be. This can help you close your loan fast, just like you wanted.
Freeze Your Credit and Spending
The worst thing you can do is spend money while your loan is in underwriting. Just because the loan officer pulled your credit already doesn’t mean it won’t be pulled again. Underwriters can pull your credit during the underwriting process or right before closing. They want to make sure nothing changed. If you made any large purchases or opened new accounts, they have to go back to the drawing board. This will delay your loan closing. It could even leave you without your loan approval.
Before you run out and buy furniture or open a new credit card account, wait. Once you close on your mortgage loan, you are free to do what you want. Until that time, though, just put everything on hold so you can make sure you keep the approval you have.
Act Fast to Close Your Loan Fast
The most important thing you can do is act fast! When the lender asks you for something, provide it right away. The longer you take, the longer it takes to close your loan. Remember, your loan isn’t the only one underwriters are working on. As you send your documents in, your loan gets put back in the queue. It doesn’t necessarily get first spot, either. You could be looking at several days before the underwriter can get to your loan.
You play a vital role in getting your loan to close fast. It’s not impossible to get it done, but you have to work well with your lender. Take the necessary steps to start the process long before you apply for a loan. This way you can move the process along smoothly, getting you to the closing table faster than you thought possible.