How Long Does An FHA Loan Take To Close? A Detailed Look at the FHA Loan Closing Timeline

Getting an FHA loan can be a great way for first-time homebuyers or those with less-than-perfect credit to purchase a home. FHA loans require lower down payments and credit scores than conventional mortgages. However, the FHA loan process can also take longer to close than other types of mortgages In this comprehensive guide, we’ll look at the various steps involved in closing an FHA loan and examine what impacts the FHA loan closing timeline

Overview of FHA Loans

FHA loans are backed by the Federal Housing Administration (FHA) and insured by the FHA. This government backing makes lenders more willing to approve borrowers with lower credit scores or smaller down payments for these loans. Key features of FHA loans include:

• Down payments as low as 35% of the purchase price.

• Lower credit score requirements – usually around 580.

• More flexible debt-to-income ratio standards.

• Access to FHA streamline refinancing even if you are underwater on your mortgage.

While FHA loans offer more flexible borrowing standards, they also come with costs like upfront and annual mortgage insurance premiums. You’ll pay these as long as you have your FHA loan or until you reach 78% equity in the home.

Overview of the FHA Closing Timeline

Closing an FHA loan takes longer than other mortgage products. Here are the average closing times for FHA loans:

• For home purchases, it takes around 44 days on average to close an FHA loan. This is roughly 2 weeks longer than closing a conventional loan.

• For refinances, the average FHA loan takes around 48 days to close – about a week longer than other refinances.

The exact timeline can vary quite a bit based on your specific situation. However, most FHA loans will close in 40-60 days. Next, let’s look at the step-by-step process so you know what to expect.

Step 1: Application and Processing

This step encompasses completing your loan application, submitting documentation, and initial underwriting. Your lender will let you know all the documents needed, including:

• Pay stubs covering the last 30 days
• W-2s and tax returns for the past 2 years
• Bank statements showing assets and reserves
• Debt and credit reports

The loan officer will review your application and submit it to underwriting once all documentation is collected. Initial underwriting reviews your credit, income, debts, and assets to ensure you meet the minimum FHA requirements.

This application processing period takes around 2-3 weeks on average. It can be shorter if you have your financial documentation ready when you apply. Submit any additional documents the lender requests ASAP to avoid delays.

Step 2: Home Appraisal

Your property must be appraised to ensure it’s worth the purchase price and meets FHA minimum property standards. An FHA home appraisal costs around $600 on average and takes 1-2 weeks to schedule and complete.

The appraiser will visit your home and look at recent comparable sales nearby to estimate the value. The appraisal must be submitted to the lender for review before moving forward.

If the appraisal comes in lower than your purchase price, additional negotiations may be needed with the seller to drop the price. This can add time to the closing process.

Step 3: Final Underwriting

After the appraisal, your loan file goes through final underwriting approval. The underwriter double checks you meet all FHA requirements and reviews the appraisal.

Final underwriting typically takes 1-2 weeks, but can take 3 weeks or more if extra documentation is needed from you or issues are found.

** Provide any additional documents the underwriter requests ASAP. Get pre-approvals for any conditions like documenting funds sources.**

Step 4: Closing

Once your FHA loan gets through underwriting, closing can be scheduled! It takes about 1 week to get a closing date after final approval.

You’ll receive a Closing Disclosure 3 days before closing outlining all costs. The lender also coordinates with the title company to prepare closing documents.

At closing, you’ll review and sign all paperwork. Once complete, the lender can disburse the loan proceeds and you’ll get the keys to your new home!

What Can Delay an FHA Loan Closing?

While a typical FHA purchase takes 44 days to close and refinances 48 days, it can take longer in some situations:

• Slower processing times – Understaffed lenders or title companies can cause delays in getting documents or approvals. Shop around to find an experienced FHA lender.

• Appraisal issues – If the appraisal is delayed or comes in low, it can set the closing timeline back. Be ready to negotiate with the seller on price if needed.

• Credit or income problems – More documentation or resolutions may be required if problems come up in underwriting, adding weeks to the process.

• Seller delays – Problems on the seller’s end with titling, liens, repairs, or their financing can also hold up closing. Build in extra buffer room on the closing date.

Tips for Closing Your FHA Loan Faster

Here are some tips to help expedite the FHA loan process:

• Get pre-approved – Being pre-approved shows sellers you can close quickly. Provide all your documentation upfront to speed initial underwriting.

• Communicate regularly with your lender – Check in weekly to ensure there are no outstanding items needed from you.

• Stay on top of requests – Quickly respond to any underwriting conditions or documentation required to avoid delays.

• Be proactive with the seller – Keep the seller looped in on your timeline and any potential delays. Extend the closing date if needed.

The Bottom Line

FHA loan closings take around 40-60 days for most borrowers. Planning ahead for the extended timeline, picking an experienced lender, and staying organized can help expedite the process. While FHA loans have more steps, for many buyers the benefits like low down payments outweigh the longer closing time.

Knowing what to expect can help you plan accordingly and avoid surprises. Now that you understand the detailed FHA closing process, you can move forward confidently towards closing on your new home.