The loan process for a USDA loan is a complex one because the approval process does not stop with the lender itself – the complete application and underwriting package must be approved by the Rural Development Area Office. A complete package means that the loan officer and underwriter reviewed all aspects of the borrower and the property to determine that it is eligible for USDA financing. Once the complete package is ready, it needs to be submitted to the Loan Approval Office, where the loan will receive its final approval, if it is deemed appropriate.
Allow Enough Time
The most important thing is that you allow enough time for the complete loan file to go to the USDA office. The typical underwriting, appraisal, and approval process for a lender can take up to 30 days depending on how fast you provide the documents necessary for approval including:
- Personal identifying information including social security numbers, residence address, age, etc.
- Employment information including place of employment, income made, and contact information
- Paystubs covering the last two pay periods
- W-2s covering the last 2 years
- Tax returns covering the last 2 years if necessary
- Asset information, if you are using it for a compensating factor
- Information for an appraisal to be completed
The underwriter may ask you for further information, which you need to provide promptly in order to keep the application process running smoothly.
The Final Approval
Once you receive approval from the underwriter to close on your loan, you have to receive approval from the Rural Development Area Office. Every office around the country has differing processing times. Typically, the loans are approved in less than 30 days unless there is a tremendous backlog of loan applications or there are special circumstances surrounding your loan. The goal of the RD office is to determine that the underwriting decision is a sound one. The basic requirements any lender needs to follow before sending a loan file to the RD include:
- The loan amount is within the standards for the area
- The property is free and clear of any liens
- The borrower does not have a history of defaulting on federal or state loans and has not made good on them prior to the loan application
- All required documentation is included for the loan
The required documentation for the loan includes:
- The automated underwriting findings
- Good Faith Estimate
- Signed and dated application by all parties
- Signed USDA Form 1008
- Proof of the CAIVRS (federal lien search)
- Credit documents (credit report)
- Proof of any assets
- Proof of income
- Identifying information, such as social security card and proof of US citizenship
- Sales contract signed by all parties
- Executed loan documents signed by all parties
- Executed IRS Form 4506
Once the full package is sent to the RD office in your area, the office will verify all documents and determine the status of the loan within 30 days. Most areas do not have to wait much longer than one week for final approval, though. Upon approval of the loan, the USDA will execute Form RD 3550-7, Funding Commitment and Notification of Loan Closing. Once the document is executed, the loan can be funded.
If a USDA loan is declined by the RD, the loan officer must let the applicant know directly. The loan officer must provide the reasons the loan was declined and possible solutions so that the borrower can apply for a new USDA loan in the future.
he USDA loan process is a complex process, but once you get through it, you are eligible to receive some of the most lucrative financing available to purchase or refinance a home!