Unless you’re paying with cash, buying a house can be a lengthy process. The average closing time on a mortgage is 45 days, according to Ellie Mae’s January Origination Insight Report. Now, some lenders are drastically cutting closing times which, they say, provides an edge in competitive markets.
LoanDepot is offering what may be the fastest quick-closing mortgage in the race. Their new product, mello smartloan, an end-to-end digital mortgage, offers qualified borrowers a home loan in as few as eight days, a feat that seems almost impossible to long-time players in the real estate industry.
One such real estate expert taken aback by these fast-mortgage claims is Iris Veneracion, a veteran investor in Southern California who buys and sells real estate for a living. She was surprised to hear about LoanDepot’s high-speed mortgage, but also quick to point out the benefit.
“That is quite impressive. I can tell you this: I flip houses, so someone who can close in as little as eight –or even 21 days– is going to be a lot more appealing to me as a home seller,” Veneracion says.
Better.com, an online lender, has also jumped in the quick-closing mortgage game. They guarantee a three-week closing after the required loan documents are uploaded to their loan portal.
Chase has a faster mortgage product, as well, called Closing Guarantee, exclusively for Chase Customers. The banking giant will give borrowers $1,000 if their home loan doesn’t close within 21 days.
Digital automation accelerates mortgage closing
Lenders are shelling out big bucks to create tech to power these new loans.
Time-consuming steps of the mortgage process, like title search, are expedited through technology that connects lenders to real estate data about existing liens on the property. Appraisal waivers are also used by lenders, like LoanDepot, to speed the closing process and get borrowers in their homes faster. These waivers are issued by Fannie Mae and Freddie Mac.
Although Fannie and Freddie have not made the number of appraisal waivers public, according to a Washington Post story, Fannie Mae acquired 60,000 no-appraisal mortgages in 2017. For homebuyers, this means millions of dollars in savings each year, as appraisals range from $400 to $600.
Fannie and Freddie have been offering appraisal waivers since 2009, but only to borrowers with excellent credit scores and low debt-to-income ratio. Initially, Fannie and Freddie thought the borrowers’ stellar credit history negated the need for a precise value of the collateral. But in 2016, they reevaluated their approach. They decided to expand the waivers to people outside of the credit-score elite, using new requirements that include information about the property, loan type and available records, among other things.
However, the risk might outweigh the benefit, according to some experts. From a consumer protection standpoint, appraisal waivers run the risk of missing major problems with the home and costing homeowners down the road, says Stephen Wagner, president of the Appraisal Institute.
This is due, in part, to automated valuation models which rely on data that comes from public records.
“A lot of times some of that public record data might not be accurate because changes to the property were made and the public records were never updated,” Wagner says. “Whereas, if an appraiser is onsite looking at that property currently, they can see what those changes might well be. For borrowers, it’s always better to have boots on the ground and eyes on the field.”
Borrowers can always obtain an appraisal even if they’re eligible for a waiver. For cash-out refinances, an appraisal might be unnecessary — especially if the borrower plans to stay in the home. The difference between buying a new house and getting a cash-out refinance is that with a house you’re buying you don’t know if there are problems. There could be major issues that cost you a small fortune down the road, such as foundation damage or a neighborhood issue that affects home prices.
The digital revolution in mortgages is all about operational effectiveness, says Sean Grzebin, managing director and head of consumer originations at Chase. He points out that, along with appraisals and title searches, the speed of income, credit and asset verification has also increased because of digital innovation.
“Customers can now take a picture of a W2 instead of having to go down to a branch to deliver paperwork,” Grzebin says.
Before you get on the financing fast track
There are some situations where getting financing quickly can make or break a deal. Quick-closing mortgages can be helpful tools in competitive markets or if you need to move suddenly. Before you choose one of these options, however, consider important issues like your closing date and home appraisal. And make sure the rate and terms you get with the fast approval are competitive.
Talk to your lender and get all the facts about the loan before you agree to a closing date. Choosing the right closing date is important because if your financing doesn’t go through by the agreed-upon date, the seller can cancel the contract.
Another step in expediting your loan is to get all the necessary paperwork in order. Make sure you have an accurate checklist of the required documents so you can provide them to your lender as quickly as possible.
Finally, if you’re approved for an appraisal waiver, be sure you understand the risks involved. If you accept the waiver and buy the house, you might not have recourse later if significant damage or problems are found.