Timeline For Clear To Close on FHA And Conventional Loan

Letter Of Explanation To Mortgage Underwriters
Letter Of Explanation To Mortgage Underwriters
April 26, 2016
2016 VA Guidelines After Bankruptcy Or Foreclosure
2016 VA Guidelines After Bankruptcy Or Foreclosure
April 26, 2016
Timeline For Clear To Close on FHA And Conventional Loan

Timeline For Clear To Close: FHA and Conventional

So, you have filled out your application, underwriting has gone through your loan and has requested certain conditions to be shown/met (updated bank statements, paystubs, and final verification of employment) and you have satisfied that, now what?  In some cases, there are some mortgage lenders who have a QC (quality control) department that you loan must pass through.  Here is like the last line of defense for a lender where there will be an additional underwriter who will review the original underwriter’s work to ensure that there are no mistakes made and that the loan will be able to be sold to Fannie Mae or Freddie Mac.  When all of these boxes have been checked and underwriting is satisfied you will then be issued a CTC or Clear To Close.  Once the clear to close has been issued, the mortgage lender prepares all the documents and wires the funds for purchase so that the loan can close.  Not all processes are the same and in the next few paragraphs we will go through how FHA loans go through a different process than conventional loans by Fannie Mae and Freddie Mac.

                When you are obtaining a loan through FHA, you have to realize that FHA is NOT a mortgage lender but rather operates under the guidance of HUD or the United States Department of Housing and Urban Development.  What the FHA does is insure mortgage loans originated from FHA approved mortgage lenders and protects the loan should the borrower default on the loan and the property goes into foreclosure.  Because of FHA insured loans, many mortgage lenders are able to originate loans which require low down payments as well as origination of loans for borrowers with higher DTI (debt to income ratio) and bad credit.  FHA mortgage lenders do need to abide by the FHA mortgage lending guidelines and must ensure that every mortgage loan does.

Timeline For Clear To Close: Underwriting

                In terms of underwriting and processing, an FHA mortgage loan is quite similar to the processing of a conventional mortgage loan.  Many sellers in today’s market aren’t properly informed and will refuse to sell a property to an FHA buyer because they believe that FHA loans are tougher to secure than conventional loans, especially when it comes to appraisals.  This is a misunderstanding and is not the case.  A home buyer who is FHA approved does need to get an FHA appraisal done on the property and conversely the conventional loan borrower needs to get a conventional appraisal done.  The only difference between the two is that safety and security is stressed with an FHA appraisal.  Although it is a part of the conventional appraisal, FHA guidelines want to ensure that the home Is 100% habitable and without major flaws or risk.  On another subject, FHA and conventional lenders require a lot of the same documents: 2 years of tax returns, 2 years of W-2s, 60 days of bank statements, 2 years of employment and residence history, IRS 4506T Tax Verification, 2 year seasoning for the eligibility of part-time, overtime, and bonus income and other pertinent documents.

In Conclusion

Nothing is different from a processing and underwriting standpoint for both mortgage loan programs.  Mortgage loan underwriters will require final verification of employment and final verification of funds prior to issuing a clear to close.  Once the loan underwriter feels comfortable that all conditions have been met the clear to close will be issued and funds will be transferred.  Again, if you are a home seller who is worried about an FHA buyer vs. a conventional buyer, you are seriously mistaken.  FHA loans are one of the most popular mortgage programs in today’s market and in a lot of cases are more popular than conventional loans.  With the relaxed requirements on credit history and debt ratios, these loans are easier to obtain.  For example the maximum back-end debt ratio (portion of person’s monthly income to satisfy debt requirements) is 56.9% when a conventional loan has a maximum of 45%.  Don’t be misinformed when buying or selling your home and risk missing out due to being misinformed.  If you need further clarification please call me directly at 888-900-1020 and we can get you approved today!

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