If there’s one thing all borrowers want to know, it’s how many days to close. The USDA loan has the unfortunate reputation of being slow to get to the closing. Luckily, it’s not the case. Yes, there is a longer period because of the USDA’s involvement in the loan. It doesn’t take months like many people assume, though. Here we look at how long the USDA process takes.
Loan Origination
No matter what loan program you choose, you start with the loan origination. This is your first discussion with a loan officer. Maybe you talk with several – it’s a good idea to shop around. This is when you provide the loan officer with your basic facts. You discuss job history, income, assets, debts, and credit scores.
You’ll also discuss your home choices. Are you shopping for a home in a rural area? What type of home? How much do you think you’ll spend? These are the basic facts the lender needs. They use this information to come up with a pre-qualification. This differs from the pre-approval. It’s a basic estimate of what you can afford.
Loan Pre-Approval
Once you choose a lender, you start the pre-approval process. During this process, you provide proof of the statements you made. A few things the lender needs include:
- Paystubs covering the last month of employment
- Current employer contact information
- W-2s for the last 2 years
- Tax returns for the last 2 years
- Bank or investment account statements
The lender uses this information to pre-approve you for the USDA loan. They base the approval on the USDA guidelines as well as their own requirements. Some lenders have what they call lender overlays. These are additional requirements lenders desire before funding a loan.
Shop for a Home
This part of the process is completely up to you. The lender and the USDA don’t play a role. The only way the USDA could slow this process down is if you choose properties that wouldn’t pass the USDA appraisal. Using a real estate agent well versed in USDA loans helps move things along. You can also search within USDA eligible areas, by using this map.
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Your real estate agent should have a good idea what the USDA will approve. The USDA appraisal isn’t much different from any other loan. Their basic requirements include:
- Modest housing
- No pools allowed
- The home must meet all building codes
- Home must be safe and sanitary
Obvious issues and those not visible to the naked eye could cause a problem. Knowing this ahead of time can help you choose the right home. The USDA loan is not a “fixer upper loan.”
Complete Underwriting
Once you sign a purchase contract, the lender waits for the inspection and appraisal. In the meantime, the underwriter completes the underwriting on your personal file. You can clear up any outstanding conditions at this time. You’ll know ahead of time what conditions are outstanding. The lender states them on your preapproval letter.
Once the underwriter has the completed appraisal and title search report, he can complete the process. He must make sure the title is clear of any liens and the appraisal meets the USDA guidelines. The underwriter’s final step is sending a complete file to the USDA.
The USDA Approval
The USDA loan is unique because they have the final say on the approval. No government-backed loans, including FHA and VA loans require this step. This is what gives the USDA loan the slow reputation. Today, though, the process doesn’t take very long. The exact time depends on the workload of the local office, though. It’s not unheard of for a USDA office to turn a loan around in less than 1 week, though.
A lot depends on the lender you use, though. An inexperienced lender may send an incomplete package. The USDA won’t accept such a package. They only approve full files. This creates a lot of back and forth between the lender and the USDA office, which can result in a delay. Choosing a lender with enough experience can minimize this risk.
Closing the USDA Loan
The final step is closing your USDA loan! This can occur as soon as the USDA provides final approval. Your lender sets up the closing with the title company. You are then well on your way to taking possession of your new home!
Ways You Can Minimize the Days to Close a USDA Loan
Your lender and the USDA aren’t the only factors determining the days to close a USDA loan. You play a big role too. How fast you provide documents to the lender is a start. If you wait days or weeks to send what the lender needs, it slows the process down. Here are a few ways to speed things along:
- Provide all necessary documents right away. The documents we discussed above including paystubs and tax returns are a given. Providing them to the lender right away helps move things right along.
- Stay in communication with the loan officer. He should contact you several times throughout the process. If he doesn’t, contact him. You should know where the loan is in the process and what they need next.
- Have explanations ready for unique situations. If you have bad credit, a missed payment, or irregular income, explain it. Don’t try to hide any details. The more honest you are with a lender, the better they can help you. Some things just need a verbal explanation. Others may require explanations in writing.
It doesn’t have to take many days to close a USDA loan. As long as everyone works together, you can likely close it in a matter of a few weeks. If there are appraisal or inspection issues, these factors are outside of your control. Instead, control what you can and let everything else fall into place. With the right steps, you can have your USDA loan in a short time!
