“I applied for a home loan 15 days ago, but I still haven’t been approved yet. Why do mortgage lenders take so long to process and approve loan applications?”
This is one of the most common questions we receive from home buyers. Unfortunately, there’s no single answer that applies to all situations. There are many factors that can influence the processing time for mortgage loans. As a borrower, the best you can do is stay in touch with your loan officer and be patient.
Why Do Mortgage Lenders Take So Long?
There are some common scenarios that can lead to a longer processing time. Here are some factors that might cause a mortgage lender to take a relatively long time with processing.
1. New mortgage rules require more verification.
In 2014, a new set of mortgage rules took effect, and they’ve had an impact on how lenders originate home loans. The Ability-to-Repay rule, for example, requires mortgage companies to thoroughly verify and document a borrower’s financial ability to repay the loan. As a result of these and other government regulations, mortgage lenders might take a long time to process and approve loans (longer than in the past, anyway.)
2. There are lots of players and paperwork involved.
When you apply for a home loan, your application and paperwork might pass through the hands of half-a-dozen different people (or even more, if you use one of the “big banks”). Loan officers, processors and underwriters, oh my! And additional documents might be requested at each stage. Think of a snowball getting larger as it rolls downhill.
This is another reason why mortgage lenders can take a long time when processing loans. There are many steps in the process, many documents to review, and several different people involved.
Granted, some lenders have made big advancements with streamlining in recent years. This is especially true for those companies that put an emphasis on technology, web-based applications, and the like. But by and large, it’s still a cumbersome process with lots of paperwork along the way.
3. Low interest rates keep lenders busy.
The mortgage business tends to be busier when interest rates are low. And they’ve been low for a long time. In fact, the average rate for a 30-year fixed mortgage has hovered below 4% for all of 2016 (to date) and most of last year.
Home prices, meanwhile, continue to rise in most parts of the country. This puts a lot of homeowners in a position to refinance their homes. Buyers are also capitalizing on low rates. All of this leads to a steady influx of mortgage applications, and it could explain why lenders take so long to process loans these days.
4. Underwriters often request additional documents.
Home loan applications go through several screening processes. Underwriting is the most intense review. This is when the mortgage lender’s underwriter (or underwriting department) reviews all paperwork relating to the loan, the borrower, and the property being purchased.
Underwriters often request additional documents during this stage, including letters of explanation from the borrower. It’s another reason why mortgage lenders take so long to approve loans.
5. Home appraisals and title searches can delay the process.
In a standard residential real estate transaction, the buyer’s mortgage lender will have the home appraised to determine its current market value. Additionally, a title company will usually step in to verify the seller’s right to sell (and transfer ownership of) the property.
Sometimes these things go smoothly — other times they don’t. For instance, the appraiser might decide the home is worth less than what the buyer has agreed to pay (in the purchase agreement). This can delay or even derail the mortgage process. The title company might have to find and fix problems relating to the title. All of this can make the process take longer.
These are just a few of the reasons why mortgage lenders can take a long time to close loans. There are other issues that can arise as well.
Sometimes It All Goes Smoothly
Let’s end on a positive note. I don’t want to give you the false impression that mortgage lending is always a slow process. Sometimes it moves quickly and smoothly, with no hangups or obstacles along the way.
Some lenders can process an application and approve a borrower in 7 – 10 days. This is especially true when there are no underwriting issues or conditions to resolve.
But if the mortgage company has a backlog of applications, and/or the borrower has a host of financial and paperwork issues, it can take a relatively long time. Loan processing time is a broad spectrum.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author