Purchasing a new home is an exciting time, but that excitement can turn to unwanted stress if you wait too long to get your financing in order. Applying for a mortgage involves a process with multiple parties involved:
- Mortgage professional
- Lender
- Insurer
- Appraiser
- Title insurance company
- Lawyer, etc.
Not to mention, you the borrower.
Everyone plays a role in the process and all need to come together to get your new mortgage closed in a timely manner
We all lead busy lives, which can lead to putting things off until the last minute. Hey, nothing wrong with that, as long as you eventually get things done. But waiting until the 11th hour to start the mortgage approval process can end up causing you unnecessary anxiety and stress. It can also result in a delayed closing, which can end up being costly.
So, when is it too late to start the mortgage approval process?
It can vary depending on the type of mortgage transaction:
- Purchasing
- Refinancing
- Transferring
- Renewing
Mortgage for a New Home Purchase
Out of all types of mortgage transactions, purchases are the most important when it comes to closing on time. A late closing could potentially disrupt the seller’s plans, which can end up being costly.
Lenders will typically require your file to be fully complete ten business days before closing (around two weeks). Fully complete means that the lender has accepted all your documents and nothing else is required from you. This doesn’t mean that it can’t get tighter to the closing date if needed. There have been times when we’ve been providing documents to the lender the day before closing, but this is not a fun position to be in, so it’s always best to provide all required documents in a timely manner.
When purchasing a new property, I usually recommend a closing date no shorter than 30 days. That being said, there are times when you may need to close earlier. Perhaps the home is empty and the seller wants the sale to close ASAP. This can help with your chances of being the winning bidder in a multiple offer situation. There are some lenders who will close in as little as two weeks or some even tighter than this.
But the shorter the close, the more stressful the process can get.
If you are in a situation where you need to close a purchase quickly, please reach out to us first to ensure the shorter closing date can be accommodated. It may limit your lender options, which can result in a slightly higher mortgage rate than what might be otherwise available to you. In either case, we’ll always get you the lowest mortgage rate that you are eligible for based on your specific situation.
Mortgage Transfer / Switch
A mortgage transfer (also referred to as a switch) is simply transferring (or switching) your current mortgage to a new lender. This is most commonly done when your mortgage is up for renewal. There are always new rate promotions being released. Transferring your mortgage to another lender at time of renewal is a great way to take advantage of them, which can potentially save you thousands. While some lenders can be quite competitive at renewal, it often makes sense to make the move.
While the transfer process can sometimes be completed in as little as 21 days, it’s not uncommon for it to take 30. If you’re beginning the process with less than 30 days to your maturity (renewal) date, then there is a good chance that it will close late. If you’re starting with less than 21 days, then it WILL close late.
Unlike a purchase where closing on time is of paramount importance, it’s not quite as crucial for a transfer. That being said, we’ll do everything we can to ensure that it does. If a transfer is going to close late, then you’ll want to reach to your current lender to ensure that they renew you into an open mortgage on your maturity date. This means that there will be no penalty for breaking it. Open rates are high, usually in the 9% range, but this is an annual rate, and you won’t need it for very long. But you’ll want to get the new mortgage closed ASAP as every extra day in the higher, open rate will cut into the savings.
Keep in mind that the additional cost is not the total interest charged in the open mortgage. If the mortgage balance is outstanding, interest will always apply.
For this reason, the additional cost is the difference between the open mortgage rate and the rate on the new mortgage.
For example, if the open rate is 9% and the new mortgage is 5.50%, then the difference is 3.50%. The additional cost can be calculated using this rate. If you owed $350,000 on your mortgage, then this works out to an additional cost of roughly $33.56 per day.
350,000 X 0.035 / 365 = $33.56
While the additional interest charges are minimal, they can still add up if you start the process late in the game. We’ll of course do the math for you to ensure that it will still be cost effective for you to make the move. The best thing is to avoid the charges in the first place by starting the process with a minimum of 30 days before closing. If you can allow more time, then even better.
Even if starting the process early, the delay can sometimes come from your current lender. As your renewal date approaches, a payout statement will be requested from them. This is what confirms the exact amount required for them to be paid out. Some lenders can be prompt with the release of the payout statement, while others may tend to drag their feet which can lead to the transfer closing late.
Additional reading:
What Happens When Your Mortgage Renewal Closes Late?
How To Maximize Your Savings at Renewal
Mortgage Refinancing
A mortgage refinance is required when you need to increase your mortgage amount or extend your amortization. The process is almost identical to a mortgage transfer and typically takes up to 30 days to complete. If you need to close sooner, then the process can be completed through a lawyer which can shave off as much as a couple of weeks. Closing a refinance through a lawyer can cost a few hundred more, but it can be worth it if you’re in a rush for the additional funds.
Additional reading:
Everything You Need To Know About Mortgage Refinancing
Mortgage Renewal
If you’re simply renewing with your current lender, then the process is virtually non-existent. All you need to do is sign the renewal form and send it back to your lender. It couldn’t get easier, and it can be done right up until your maturity date. While convenient, it can end up being a costly move as there are often lower rates available by switching. Sometimes much lower.
Additional reading:
Everything You Need to Know About Mortgage Renewals
Conclusion
We’ll always do everything we can to ensure your mortgage closing runs as smoothly as possible. While quick closings can often be accommodated, waiting until the last minute can result in additional stress, which can take away from the excitement of purchasing a new home. Every situation can be different.
Wherever possible, it’s always best to allow enough time which will help us with our goal to give you a better mortgage experience than you’ll get anywhere else. If you’re in a situation where you need to close quickly, then please contact us and we would be happy to discuss your options with you.
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