As someone who owns multiple properties, I’ve had my fair share of refinancing experiences over the past two decades. So, you might be wondering, how long does it take to refinance a mortgage loan these days? Well, the quick answer is about 2-3 months on average. This is a significant increase from the one-month average before the global financial crisis.
With mortgage rates on the rise in 2022, qualifying for the best mortgage rate has become more challenging. More people are finding themselves unable to afford it, and lending standards have become stricter. Banks are also preparing for a potential economic slowdown, which could lead to more mortgage defaults.
So, how long does it take to refinance? In 2022, the average time to refinance is between 60 and 75 days. If you’re unlucky, it could take even longer. It can feel like an eternity, but the potential savings make it worth the effort. Why pay more for your mortgage if you don’t have to?
Even though the 2007-2008 financial crisis is long behind us, qualifying for a new mortgage or refinancing a mortgage through traditional banks can still take a painfully long time. Why is that? Well, you need to gather a lot of documents and have a lot of patience even before starting the underwriting process. Banks want to see a healthy W2 income or at least two years of 1099 income.
Moreover, major lenders with great rates like Wells Fargo and Citibank are struggling to keep up with demand.
Let me give you an example of how long it can take to refinance a mortgage. This is a true story about one of my previous mortgage refinances. It was one of the most challenging mortgage refinances I’ve ever done.
Finally, my principal residence mortgage refinance was completed! There were some hiccups along the way. PG&E hit my credit score by about 100 points due to an $8 non-payment I was unaware of from three years prior by my tenants. But in the end, I was able to overcome these obstacles and complete the refinance.
The mortgage loan refinance started on January 20th when I heard a friend say he just locked a 5/1 ARM for only 2.75%. I was intrigued because I had just refinanced my own 5/1 ARM in the fall of 2014 to 3.125% from 3.625%. I called Citibank to see if I could get the same offer as my friend with all fees included, and they said absolutely! In fact, the very next day, my banker called me to say that they could give me 2.625% with all fees included.
Despite being a Citibank Gold client for over a decade and having all my documents and access to all my accounts, the mortgage refinance process was not as smooth as I had hoped.
After 30 days had passed since locking the loan, I was asked to provide several documents, including my W2 form, latest 2 pay stubs, printout of assets from bank accounts, and home insurance policy. I sent over all the documents, and then I waited.
After sending in all my documents, I didn’t hear anything from Citibank for the next two weeks. I then realized that I would need another appraisal since an appraisal report is only good for 90 days.
The appraisal process was straightforward. The bank only loans up to 80% of the value of the house. My LTV was at 60%, so I wasn’t too worried. The appraiser didn’t even have to come to my house this time! They just sent in an electronic report to Citibank, appraising it at the same amount from 4.5 months ago.
Despite Citibank covering the $860 home appraisal fee, I knew I was indirectly paying the fee through a higher rate. There is no free lunch in mortgage refinancing.
By day 76, I was frustrated with the slow progress of my mortgage refinance. The 10-year yield had moved up from 1.85% when I locked, to 2.3%, and I was getting worried.
My mortgage loan officer contacted me and asked for additional papers for the underwriter, including a home insurance statement with contact person and loan number.
Around day 80, I received an urgent call from my mortgage officer. She thought I was no longer working because I had taken the afternoon off to play golf. She also brought up the news of my 100 point credit score hit due to the delinquent payment from PG&E.
After 80 days, I was frustrated with the delay. I wrote a long email back saying that this was wrong of them to do. I’d been a good client for over 10 years, never been late, referred over 30 customers, and had enough cash in the bank to pay off the entire principal loan.
In the end, a senior mortgage officer stepped in and assured me that the mortgage refinance would go through. I spoke to PG&E and told them the delinquent payment penalty was egregious. They agreed to send me and my bank a “Clear Credit Letter” stating that the delinquency was removed and they contacted all credit agencies to remove the penalty.
Even though I knew we were closing in on the 90-day limit for closing, I decided to take a vacation to Honolulu. I told my mortgage officer and her boss that I was off to Hawaii, and that if they want me to sign the papers, I would do so when I return in a week. They decided to hire a notary at their expense to meet me at my place in Hawaii.
When the notary showed up, she asked for a cashier’s check for the interest due for the rest of the month. I was not informed about this by Citibank, and there were no Citibanks in all of Hawaii. I told Citibank and the title company they’d have to wait another 5 days until I got back to San Francisco before they could officially close the loan.
In the end, it took 97 days to get my mortgage loan refinance completed.
So, what can we learn from this experience?
Banks are lending again, but they are being encumbered by new government rules and regulations which are there to protect the borrower.
Before the 2008 financial crisis, a mortgage refinance would take 30-40 days on average. Now, it looks like mortgage refinancing is taking 80-90 days or more.
A loan-to-value of 80% is industry standard now.
The cheap and easy money from 2020 and 2021 is over! As a result, it’s more important than ever to prepare your finances to qualify for a lower mortgage rate.
People who do not need to refinance get to refinance. Only if you have excellent credit (760+) and a LTV of 80% are you able to refinance.
The rich will get richer. Those with capital are buying properties in droves right now.
Banks hate the government as much as people. New government regulations have made the underwriting process significantly more difficult to pass, which has led to a 100% increase in the time it takes to refinance a mortgage loan.
So, if you’re considering refinancing your mortgage, be prepared for a lengthy process. But remember, the potential savings make it worth the effort.
