How Long Does it Take to Close a Mortgage Loan?
- Home buyers must sign a number of legal documents and meet lender requirements before a mortgage is granted. Legal requirements and home-buying procedures vary by state, but many basic steps are required in all cases. Cash sales -- without any contingencies by buyers or sellers -- may be closed in a matter of days, but the requirements placed on the new homeowner, seller, bank, real estate agents, and title and escrow companies all add days to the closing of a mortgage loan. Sale contracts typically stipulate that the homeowner complete the requirements necessary to obtain a loan and take ownership of the house in 30, 45 or 60 days.
Applying for a home loan means buyers must meet the demands of the lender before the funding takes place. The first requirement asks the buyer to provide documents to the lender to prove that the buyer has the necessary income and a clear credit history, without dings or foreclosures. The buyer also must be able to positively prove identity with a state-issued driver's license and a Social Security card. Buyers are required to provide work payment stubs (or other forms of income verification such as a letter from the employer stating monthly income) and income tax returns, and they often must also show proof of current residence that typically includes utility bills. Any major negative credit report results must be cleared before the mortgage will be funded. Developing a portfolio of these items before applying for a loan saves time in the mortgage process. - All contracts have a "cooling off" period, during which the signer is able to withdraw from the agreement. This varies by state but usually includes a minimum of three business days. This signature time lag for paperwork adds time to the closing. Mortgage lending companies require a formal title search to guarantee there are no other liens on the property, which requires additional time. There may be a cloud over the legal ownership of the property due to prior loans on the property that have not been paid, or problems with the title holder's legal name. Occasionally a title transfer was not done correctly in the past and this resurfaces during the current title research. The title search may bring up questions about the exact land boundaries of the home.
- Numerous home disclosure forms are filed as formal addendums to the purchase contract. These vary from state to state, but most states require at least one. These include a form required under Megan's Law that identifies sex offenders living in the neighborhood. Other states, such as California, require forms identifying airport noise that may affect the home residents, or the presence of toxic industries near the home. The federal government mandates a form identifying the presence of lead paint in the house. The homeowner may need to contact a service to test paint to adequately answer the questions on this form. Most states require special cleaning procedures for houses used in illegal drug preparation, due to potential health hazards for the new owners. If the residence has been involved in a drug arrest, such cleaning may be required. Most buyers want to investigate any special circumstances related to these documents; mortgage lenders want to avoid any potential lawsuits that might arise from these disclosures. Lenders demand research time when disclosures indicate potential soil problems, or termite reports identify structural damage. In states with active termite populations, mortgage lenders require a clear termite report. Depending on the speed with which these disclosures are completed, investigated and ameliorated, the mortgage may be held up for days, weeks or months.