The FHA Loan Approval Process Simplified
Origination is the term used to describe when a lender creates a loan that is insured by the FHA . Contrary to popular beliefs, FHA loans are not originated by the government., rather, they are originated by private lenders and are insured by the FHA. FHA will examine a loan and decide whether or not it met their specified guidelines and insure it based on their published criteria. The lender incurs some cost in originating the loan and getting it insured, and these costs are passed on the the consumer. There is a loan origination fee cap, typically 1% of the loan amount. Once the loan is originated, you will receive paperwork you must sign to get the application process started and handed over to the processor, or the next step.
Once the initial application is originated, the processing of the loan begins. The processor will verify all employment, credit, assets, calculate income and insure the loan meets FHA standards. Once the loan is processed, you may be required to provide additional documents such as explanation letters for employment gaps or derogatory credit.. This step can be the most time consuming because many credit or employers have a lag time before sending in verification required by FHA. Processing your application can take an average of 2 weeks to complete. Once the processor has completed their review, the loan is given to an underwriter that will review all documentation and issue an approval or denial. If the loan is approved, it will go to docs. If it is denied, you will be notified.
Preparing Loan Documents
The loan documents will be prepared by the lender and serve as the documentation that your loan was approved and is ready to be legally finalized. Typically, the final loan documents are many pages and borrowers spend a good hour or two to read, sign and date all forms. It is important to refer to your payments on you Note. Also, the deed of trust documents the property and is recorded by the county overseeing ownership of the parcel. Finally, the HUD1 document details all fees you paid to secure the loan. This part of the process can take 5 days, depending on your lender's workload. Your lender may be able to send the documents by email to expedite the process.
Once all your documents have been signed and returned they will enter the funding step. The lender will review what you signed to make sure no changes have been made since the original loan was approved and everything is signed and notarized correctly. Funds will then be wired to your title or escrow account. The attorney or title company in charge of the account, often termed the "paymaster," will receive the funds through electronic wire transfer and prepare them for disbursement. Depending on when the wire was initiated, this step can take up to 4 days, again depending on your lenders workload. Wire transfers can often be delayed due to bank restrictions. It is best to make sure all parties involved are aware the wire is taking place; you may also request a wire transfer confirmation on any transaction prior to actually receiving the funds.
In this phase, all of the documents will be sent to the county recorder's office so they may track ownership of the property. The documents is an official, public document of record only once they are stamped in the recorder's office. It may take up to 2 days for this step to occur in full. Once this occurs, your loan is official. You will simply need to wait for funds. The first coupon should arrive within 2 to 3 weeks.