FHA loans carry a lot of myths with them. One is how long FHA loan underwriting takes. You’ve probably heard both sides of the coin. Some say it takes too long, causing them to lose the contract on their home. Others say it went lightning fast. Who’s right?
It depends on the person and the bank. Both parties play a role in how long the process takes. Guess who doesn’t play a role, though? Did you guess the FHA? You’re right. They don’t look over every loan file. Instead, they approve certain banks to handle FHA business for them. The banks know what the FHA requires. They only approve those loans. If they approve something the FHA doesn’t allow, they won’t receive the FHA guarantee.
Understand the Bank’s Turnaround Time
A large factor in FHA underwriting is the bank’s turnaround time. This should be one of the first questions you ask the bank. Ask them their average underwriting time. This doesn’t take into consideration any back and forth they have to do with you. We’ll get into that in a minute. All this pertains to is the average time it takes their bank to complete the process.
This starts from the origination of the loan (talking to the loan officer) and continues with the underwriting. It ends with the “clear to close” and the official closing. You’ll likely hear anywhere from 3 weeks to 2 months. Of course, each bank is different, though.
Get Yourself Organized to Speed Up FHA Underwriting
Did you know that you play an important role in FHA underwriting? The lender can’t force you to work any faster than you are prepared to do. Starting off with a complete package helps speed things along. A complete package includes:
- All personal identifying information – You’ll need to disclose your name, address, social security number, employer information, etc.
- All income information – Disclose your annual income as well as provide proof with your paystubs, W-2s, and/or tax returns
- All asset information – Disclose your assets as well as provide proof with bank or investment statements for the last 2 months
- Any other important information – If you have collections, late payments, or other special circumstances, provide proof that you cleared them up or explanations why they exist
Providing the lender with as much information up front as possible can help move things along. The lender won’t have to come back to you and continually ask for items. They can then give you a good idea of how much you’re preapproved for, which helps avoid delays down the road.
However, a majority of loan underwriting requires a little back and forth with the lender. The underwriter might need clarification on certain items. They may ask for information about a deposit in your bank account or for more explanation about your income. The faster you answer the lender’s questions and provide the paperwork they need, the faster the process moves.
The Seller Plays a Role
If you are buying a home, the seller plays a role in the FHA underwriting process too. They control the appraisal. Not how much the appraiser says the home is worth, but when the appraiser can see the home. The appraiser has to make an appointment with the seller. If the seller is uncooperative, it could delay the process. Your lender can’t underwrite your loan until they know the value of the home.
Along with the value, however, the bank needs to know that the home meets the FHA’s minimum property standards. These aren’t anything major, but they make sure the home is safe, secure, and sound. The FHA won’t guarantee a loan on a home that doesn’t meet all three requirements.
FHA Loan Underwriting is Collaborative Work
As you can see, many people play a role in how long FHA loan underwriting takes. One person can really delay the process if they don’t cooperate. When you shop for a lender, make sure you ask specific questions about their process. If you can, talk to previous clients to see what their experience was like.
If you are buying a home, you must meet the contract dates. If you don’t, you could end up in violation of the contract, causing you to face other issues. If a lender has long turnaround times, check with others. The FHA guidelines are the same from lender-to-lender. What differs are the lender overlays. Some lenders are stricter than others. But, unless you have a really unique situation, it shouldn’t be hard to find an FHA lender for your loan.
Shop around and see what offers are available to you. Don’t focus strictly on the interest rate. Focus on the big picture. Asking what the turnaround times are along with finding a great rate can help you get the best deal. Remember, though, you play an important role in the process. The quicker you respond to your loan officer/underwriter, the quicker the loan will get to the closing table.