USDA Loan Process
TABLE OF CONTENTS
Getting pre-approved by a lender makes the home buying experience much better. Why? Because borrowers know what they can afford in advance. Knowing this makes online searching (e.g. Zillow) faster and more relevant.
What’s more, real estate agents are empowered to provide better service to their clients. They’ll be able to identify homes not yet listed, but coming on the market, in the right price range. Some real estate agents insist that clients are pre-approved before showing any homes.
On the other side of the transaction, some sellers will instruct their agents to not show their home to any buyers who are not yet approved for a loan. Everyone involved just wants to create some efficiency in the mortgage loan process.
Pre-Approval / USDA Loan Application
A loan officer will collect information about the borrower and prepare a loan application. They’ll pull credit report and provide a checklist of documents that the borrower will need to round up. This includes things like W-2s, bank statements, etc.
Loan processors gather up all the require documentation and assemble a loan package that will be handed off to an underwriter. They’ll verify the borrower’s employment, income and assets. Processors order the appraisal and inspection when the time is right (more below).
Borrowers, along with their real estate agents, view homes of interest. When one is selected, the agent will put together an offer for the property. Offers should include contingencies. That means offers are only good as long as the loan is approved, the appraised value holds up and the property is free from major defects.
USDA Appraisal / Inspection
With an offer in place, it’s time to order the appraisal and inspection.
Appraisals assign market value to a property. They may come in high or low. Low appraisals can derail a transaction for a variety of reasons. High appraisals can help absorb some of the closing costs should you choose to roll them into the loan.
Inspections aim to find flaws, if any, with the property. They may come back that point out certain items are in disrepair and need to be fixed. Your real estate agent can use this as leverage in the negotiation or have the seller repair items before the transaction goes through.
Underwriters review and pore over the loan file in great detail. Their goal is to make sure the borrower’s credit and capacity to repay the loan are sufficient. They also determine if the file meets Rural Development (RD) guidelines. They’ll also verify that the property is in good condition, suitable as collateral for the loan.
If everything in the file checks out, the underwriter submits the loan file to Rural Development and requests a Conditional Commitment for Loan Note Guarantee. If the Guarantee is approved by RD, the lender is cleared make the loan.
Underwriters may come back with conditions. If this is the case, consider a soft ‘yes’ that the loan is approved. Conditions are simply the last items required for the loan to reach final approval.Usually the items are small and easy to obtain pretty quickly. Sometimes it’s as small as a simple typos in the loan application. In some cases, the underwriters will just ask for clarification regarding something in the loan file.
Lock Interest Rate
If there are no outstanding concerns regarding the appraisal, inspection or loan approval, this is typically the best time to lock the interest rate. Your loan officer will be able to provide some guidance on this matter.
In most cases, closings take place at at title company’s office. This is the meeting where the loan documents (or “docs”) are signed and notarized. Closings tend to take a bit of time because there are so many papers to sign. Borrowers should know that they can take their time and ask questions along the way. This is a big transaction. No one should feel that they can’t seek clarification on any matter.
When all the docs are signed, a representative from the title company records the Deed with the county.
How Long Does it Take to Get a USDA Loan?
USDA loans take about the same amount of time as any other type of loan program. If the market is hot, it can slow things down for everyone. Typically, USDA loans close in 30 days.