You may have heard that USDA Guaranteed Loans take forever to obtain approval. This is a myth that prevents many people from using this great program. In reality, the USDA program does not take much longer than any other loan available today. There are many factors that play a role in how long a long takes to close, not all of which depend on the USDA. You, the borrower, play a vital role in how long the process takes as well.
Two Parties to the Approval
The main difference with a USDA loan versus any other loan is the two party approval system. With a typical loan, such as a conventional loan, the lender underwrites the loan and approves it for closing. The USDA loan, on the other hand, has to go through one more step. The bank must send the complete package to the USDA for final approval. This is what many people think takes so long. Depending on where you live and the workload of the agency, though, it may only take an extra week. The USDA will let your bank know exactly how long the waiting period is at any given time, though.
Starting the Process
In order to get the USDA loan process going, you must have a purchase contract. All parties must sign the contract to start the loan process. Once you execute the sales contract, the lender can order the appraisal. This is often the longest part of the entire process. You have to coordinate with the appraiser and the current homeowner to conduct the appraisal. This means the current owner must be home in order to give the appraiser access to the inside. While the lender waits for the appraisal, they can order the title search. This process takes several days as well. The lender can also gather the necessary documents from you. This helps get the process started.
Providing the Documents
Providing the documents is where you come into play. If you do not provide the documents in a timely manner, it can slow the process down. The underwriter always needs documents including:
- W-2s for 2 years
- Tax returns (in some cases)
- Proof of assets
- Employment information to contact your employer
- Social security number to pull your credit
These are the basic documents. Oftentimes, the underwriter needs more once they take a closer look at your file. As soon as you know the underwriter needs new documents, send them in right away. The longer you wait to send your documents in, the longer the process takes.
Reviewing the Appraisal
Once the appraiser turns the appraisal into the lender, the process can continue. The lender needs to make sure the property is safe and sanitary. They also need to make sure the property is located within USDA boundaries. You can see the eligible homes, on the USDA’s map. Other considerations the lender needs to make include:
- The home must be for residential purposes only
- The home must be modest for the area
- The home must be safe and sanitary
Any critical repairs found to be necessary must be done before the closing. The USDA will not approve the loan to close with the repairs outstanding. This means the seller must agree to make the repairs. He must also document the completion of the repairs and provide them to the lender.
Sending the USDA Guaranteed Loans Package to the USDA
The final step is to send the complete USDA Guaranteed Loans package to the USDA. This is where the waiting may occur. If you use a lender experienced in USDA loans, hopefully you will not have any delays. Experienced lenders know what makes up a complete package for the USDA. They usually do not send incomplete packages because they know the USDA will turn them down. If the USDA does not approve a package, they send it back and require you to complete it before sending it back.
Closing the Loan
The final step is taking the USDA loan to closing. Once the lender receives final approval from the USDA, it can close. This means the lender must send the loan over to the title company to prepare the closing documents. This could add a few more days to the process depending on how busy the title company is at the time. Once the final closing documents are ready, you can close on the loan and move into your home.
The USDA Guaranteed Loans process is not as long as many people believe it is, but it is longer than most loans. The best way to speed the process up is to have all of your documents ready at once. Don’t piece meal your documents to the lender, as he cannot send your package to the USDA until it is a complete package. Stay in close contact with your underwriter and figure out what you need to make a complete package. Once you turn everything in, the process should move along rather quickly!