Mortgage rates are still at record lows, but when it comes to the best time to apply for a mortgage, there is a whole lot more to “timing” than just market conditions. Timing actually plays a critical role in the second most important factor in your mortgage experience: service.
It’s a bit of a dirty secret in the mortgage industry: Every mortgage lender has very, very regular monthly business cycle. As you might expect, compensation drives a lot of this cycle. Loan officer commissions, processor bonuses and management overrides are invariably tied to monthly production numbers. But it’s not just compensation. The mortgage note itself, for example, becomes worthless if not signed in the month drawn. Even borrowers themselves play a role as they often want to close at the end of the month to minimize the prepaid interest that can increase “out of pocket” costs.
So what is the mortgage business cycle?
- The beginning of the month is generally devoted to acquiring and setting up new loans.
- The middle of the month is all about gathering trailing documents and getting loans ready for month-end.
- The end of the month is a mad rush to get as many loans closed as possible.
The best time to start the loan application process is always the first few business days of the month. This is when lenders are most hungry for new business. They’ve gotten through the end-of-month push and are now looking forward to building a great new month. You’ll find loan officers and processors eager to return your phone calls and carefully review loan options and terms with you.
Conversely, the worst time of the month to apply is the last week of the month. This is when the push to close loans is in full swing. As much as your lender might like to be working on new applications, they need to close loans if monthly targets and compensations goals are to be met.
The bottom line: If you work with this cycle and commence the refinance process of the 1st of the month, you might scratch your head when people complain about their mortgage experiences. Apply at the middle or end of the month and you might think that your loan is being processed with a meat grinder.
Don’t get me wrong, your loan officer is always happy to take your application. You’ll find, however, that you might just get a little more TLC and attention if he is not scurrying to fulfill his existing pipeline. To buy time, you may get vague excuses for why things aren’t moving along as quickly as originally discussed, leading you to believe you are not the number one priority.
Does that mean that you should never apply late in the month? No. But it does mean that you should set your expectations based on where you are in the mortgage lending business cycle.
If it is not feasible to take advantage of the attention and focus you can get at the first of the month, let me suggest a few tips to improve your refinance experience:
1. Get organized
Your lender is going to ask you for a lot of financial documents. Make sure they’re at your fingertips.
2. Submit a complete application
If you supply a complete set of documents with your application, your processor will be able to get your loan straight to underwriting.
3. Provide detailed information and explanation
Consider how your application is going to appear to a risk-averse underwriter. Explain any quirks in your financial history, such as employment gaps or past derogatory credit.
4. Anticipate delays
Make sure you include a few “buffer” days in your rate lock. You don’t want to lose your rate over delays that are outside of your control.