When is the best time to apply for a mortgage?

By Geraldine Grones

A young couple shake hands with a mortgage broker

With the possibility of mortgage rates rising soon, many potential homebuyers want to know the best time to get their mortgage application into a lender’s hands. The truth is that there is no absolute right or wrong time to apply for a mortgage, but there are a few different times when you might want to consider submitting your application to a lender.

In this article, we will give you some pointers that will help you decide when to apply for a mortgage, as well as when to buy a house.

When is the best time of the month to apply for a mortgage?
Mortgage lenders have a regular monthly business cycle, which is not only driven by compensation numbers but also because the mortgage note itself, for example, is only valid if it is signed during the month it was drawn up.

The best time to start the loan application process is always the first few business days of the month. This is when lenders are generally most focused on acquiring and setting up new loans. You will find loan officers and processors eager to return your phone calls and carefully review loan options and terms with you. While "many" does not mean "all", it is true that most lenders are looking for new business at the beginning of the month.

On the other hand, the worst time to apply is the last week of the month. Brokers will be in a rush to get as many loans closed as possible. As a result, even if a lender may want to work on new applications, they will still need to close on their existing loans to meet monthly targets and compensation goals. It's very likely that this set of circumstances will end up leaving you waiting for the start of a new monthly period. Again, this is not always the case, but it has been proven true in many instances.

Still, this does not mean that you should never apply late in the month, however if you do, you should set your expectations accordingly.

How can you speed up the mortgage application process?
The time it takes for your application to be processed depends on how complex your loan is and when you apply. In some cases, the lender can provide you with your loan contract within an hour of walking into a branch. However, for more complex loans, it may take 4 to 7 business days.

In terms of when you apply, if it is not possible for you to take advantage of the attention and focus you can get at the beginning of the month, here are some tips that will ease the application process a bit for you:

  • Get organized, and make sure all your financial documents are at your fingertips
  • Submit a complete application so your processor will be able to get your loans straight to underwriting
  • Provide detailed information and explanation regarding any quirks in your financial history (such as employment gaps or periods of bad credit)
  • Anticipate delays by making sure you include a few ‘buffer’ days in your rate lock (as you do not want to lose your rate over delays that are outside of your control)

Which should you do first: apply for a mortgage or look for a house to buy?
You cannot buy a house without a mortgage, but you cannot get a mortgage until you are ready to buy a house. Many homebuyers end up losing their dream house because they delayed sorting out a mortgage until it was too late. Arranging your mortgage as early as possible can put you in a stronger position with sellers, as well as reduce the amount of stress you may incur in the process.

You should start thinking about applying for a mortgage before you begin to search for a specific property to buy. Here are the reasons why:

  • To determine how much you can afford (especially if you are in a complex financial position such as being self-employed or having just started up a business)
  • To ensure that the home purchasing process is not derailed by delays and problems with the mortgage
  • To put you at an advantage compared to other buyers who may not have a mortgage yet
  • To enable you to buy jointly with anyone (as this will affect the sort of mortgage you can get, as well as how much you can borrow)

Even before you find a prospective property, a lender can give you what is known as approval in principle (AIP), which indicates how much they are ready to lend you depending on your circumstances and on what terms. They will offer this after you provide them with evidence of income, among other things – different lenders may have different requirements.

Before you can complete a mortgage application in full, rather than in principle, you will need to have a property in mind. This is because you will need to have a valuation of the property, and most mortgage companies will insist that you choose their surveyor to do the valuation.

When it comes to the price of the valuation, it depends on the value of the house to be surveyed. Some lenders will have you pay for the valuation, while others will pay this fee for you (especially if they are trying to attract you as a new customer). It may also be a fee that is added to the total payments, allowing you to pay it off over time.

When is the best time to buy a house?
The best answer to this question is that you should buy a house when you can afford and you are ready to do so. Of course, so many people are concerned that affordability is too much of an issue right now to get into buying a property.

News surrounding the rising cost of housing and the property bubble is front and centre nearly every morning these days. And while this may have the effect of keeping potential homebuyers off on the sidelines, it's very possible that many of them could have made it into the property market successfully.

On the other hand, you should not run off and buy any old property at any time just because you have some extra funds you could put towards a down payment.

The reality is that, for most people, there will be neither a perfect time nor a perfect property to buy.

Market timing is an essential factor for your decision. The more knowledgeable you are about how the property markets work, the better prepared you will be. While it is natural to be cautious and important to assess carefully your own position when it comes to your capacity to buy, you should also remember that with risk comes reward.

If you are going to buy an investment property, for example, you can minimise the risks involved with the right type of research, financial planning, goal setting and advice from experienced experts. If you are willing to sit on your property purchase for medium to long term and buy in tried and tested areas that provide consistent, proven, above average capital growth, you will reap the reward of your investment. To ensure long term capital growth, you should look for areas where there are multiple capital growth drivers (such as gentrification, employment growth and population growth).

When is the best time of your life to buy a house?
When your circumstances in life change, it is sometimes necessary to change your living circumstances as well. Among all life stages, here are the ones where it is easiest to buy a house:

Dual Income No Kids (DINK)
Due to high income levels and a lack of kids, DINKs are likely to spend more than average on clothing, dining, technology, and travel, which may mean they are in a prime position to afford to buy a home. However, as they do not have to be responsible for housing children, there is less motivation for DINKs to buy a home, unless they decide to become property investors. As a matter of fact, studies show that property investors are getting younger these days.

Downsizing retirees
Downsizing is the act of reducing the size of your house by selling your existing property and moving to a smaller place. Most of the time, people downsize because of financial reasons. By freeing up an amount of money – either by buying a smaller, less expensive property or moving in with relatives and investing the sale proceeds, it helps the elderly prepare for a smoother transition into retirement.

As you can see, there are many different possibilities and limitations involved with when it is best to apply for a mortgage and buy a house. It is also important to realise that dozens of factors impact real estate markets, such as the state of the economy, mortgage interest rates, and local demand and supply. Make sure that you take the time to compare the different home loan products available out there and do lots of research before finally deciding to purchase a property.

 

More Home Loan Guide