You’ve probably heard nightmare stories about how long the FHA loan takes to close. People claim they waited months for a closing. What they don’t tell you is the factors that delayed that closing. Most of the time, it has nothing to do with the FHA. Instead, it has something to do with the loan officer, the bank, or even the client himself.
What’s the Average Time to Close?
If we had to pinpoint an average time to close, we’d say between 30 and 45 days. This is how long most lenders take from start to finish on an FHA loan. But, this is the case for many types of loans.
Did you know the FHA doesn’t underwrite the loans themselves? Instead, they have FHA-approved lenders. These lenders know the ins and outs of what the FHA will accept. So in reality, the FHA has nothing to do with your turnaround time. It’s up to you and the lender.
What Factors Affect the Time to Close?
So now that you know it’s not the FHA that controls the time to close. Let’s look at what does affect it.
Application completion is a big factor. No lender can underwrite a loan with an incomplete application. If the lender has to go back and forth with you, it can delay the process. In fact, your process isn’t considered started until you complete that application. So don’t start the time clock until you have that application looking good.
The lender’s current workload plays a big role too. Applying for an FHA loan during a time when a lot of others are too, creates a longer wait. Some lenders work quick despite a larger workload, while others slow down. It pays to ask a lender what their current workload is like so you have an idea of what to expect.
The appraiser can hold things up too, though. Again, a large workload can make it harder for him to get out to the property. It can also slow down the turnaround time of the appraisal report. Underwriters can’t move forward with the underwriting process until they know the value and condition of the home.
Lastly, you can affect the time to close. It’s not often that borrowers have everything an underwriter needs at once. Of course, supplying paystubs for the last 30 working days, last 2 years’ W-2s, and your asset statements for the last 12 months helps speed things along. But, many lenders require further verification. You won’t know what they need until they ask. Then it’s up to you to act fast.
Obstacles in the Underwriting Process
Obstacles in the underwriting process can really slow things down for you. So how can you make sure they don’t happen? Here are a few tips.
- Clean up your credit report – Pull your credit report and see what reports on it. Do you have late payments? Are there collections? You must clean these things up before applying for the loan. If you leave them, you force the underwriter to investigate further, which slows down the process.
- Check your documents – Make sure your paystubs don’t show anything out of the ordinary, like automatic withdrawals for alimony or tax debts. This will force the underwriter to ask more questions. He will likely need more documents too. If you know there are withdrawals on your credit report, provide documentation on these items upfront.
- Know the value of the home – You might not be an appraiser, but you can do a little homework. Check around to see what homes in the area sold for recently. If you offer a price that is well above the average for the area, you might have trouble with financing. This could delay the closing process. Make sure your bid is in line with the others.
- Be honest – Hiding things from an underwriter can only hurt you in the end. Be open upfront about any issues you have experienced. Maybe you had a bankruptcy or you fell behind on your bills. The underwriter will likely need a Letter of Explanation and proof that you overcame these issues. Brushing them under the rug will only delay things in the end.
One More Way to Close Faster on Your Loan
The last way to make sure you don’t wait forever to close on your loan is to shop around. Ask lenders flat out what their turnaround time is. This way you aren’t stuck with a lender with a long turnaround time. Knowing upfront how long they might take can help you know what to expect.
You can use many FHA lenders out there. Don’t assume you have to use the first one that approves your loan. Shop around and see who has the best rate and terms. But, also consider their turnaround time. If you have a specific date or timeline you must stick to, this could play an important role.
The Bottom Line
The FHA has nothing to do with your turnaround time. They don’t make your loan close any slower or faster than you need. Instead, it’s up to you and the lender. Do your homework and find the lender that works best with you. Having a good relationship can also help. This way you know the lender will be open and honest with you regarding the turnaround time.
You have a lot of say in how fast your loan closes. Work closely with your lender for the best turnaround time possible.