Buyers considering a USDA loan often want to know how long it takes to close on a USDA loan.
Every homebuying situation is different. But once you’re contract to purchase, you can typically expect the USDA loan process to take anywhere from 30 to 45 days to close on your USDA loan.
As they say, though, your mileage can vary, and if your goal is to move through the USDA loan process faster, here are some ways you can make your closing as streamlined as possible.
Speeding Your USDA Loan Along
Even though it might seem as though your loan’s fate is in the lender’s hands, there are actually several things borrowers can do to speed the USDA loan closing process along.
To make the process smoother for a USDA loan to be approved, be prepared to:
1) Compile the documents that a lender will ask for.
Yes, it can seem daunting to compile all the documents that are requested, but it can help the loan process go so much smoother. Ask your lender what they need, but some common documents will include:
- Your Social Security card
- Pay stubs from the past 30 days that also show your year-to-date income
- Two years of W-2 forms from your employer
- Two years of federal tax returns
- Addresses for your past two years of residence; if you’ve been a renter, include landlord contact information
2) Respond as soon as you can to their requests for more information.
You might feel like you’ve turned in everything they could possibly need, and then something else comes up. But remember they are not asking for more paperwork to cause you a problem – they need it to proceed, so make sure you comply with the request as soon as you can.
3) Make sure you have received a preapproval.
If you’re serious about buying a home, make sure you get a preapproval from your lender. Note that this is different from a prequalification, which merely shows how much they think you would qualify for, based on some financial information you give them.
Preapproval means you have submitted verification documentation, and the lender has been able to assess how much money they will actually loan you, assuming nothing in your financial situation changes. While a preapproval will speed your mortgage process, it will also make you look like a more serious buyer, so it’s important all around. And remember, once you’ve turned in the paperwork needed for the preapproval, you won’t have to assemble it again so you’ll be one step closer to your USDA loan closing.
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Be Prepared for the USDA Loan Appraisal
USDA loans require an appraisal, which helps assess whether the sale price is in line with the home’s fair market value. The USDA also wants to see that properties are safe and sound for homebuyers.
Typically your lender will setup the USDA appraisal, which is conducted by a USDA-approved, independent third-party appraiser. Items the appraiser looks for include:
- A home that is in a livable condition without any work needed.
- The value of the land is not more than 30 percent of the value of the home.
- It has street access on properly maintained roads.
Some appraisals happen faster than others. Geography, demand and more can all play a role.
Lenders don’t have any control over how quickly the appraiser gets out to the property or how fast their final report comes in.
Avoid Closing Delays
Once under contract, it's important to remember that preapproval is not the same thing as loan approval. A lender’s underwriting staff will review your loan file, the home’s appraisal and your overall credit and financial information.
Lenders will also look to make sure there’s nothing new that could cause them to question your ability to pay back your loan.
Here are four practices to avoid that could red flag your loan – and delay the process.
- Job changes: Lenders like steady employment because it makes it more likely you will pay back your loan. If you move to a lower-paying job or new field, they may wonder if you’ll have trouble making your payments.
- New lines of credit: It can be tempting to get that “zero interest, no fee” credit card to rack up points or get a discount on a big purchase, but anytime you open new credit, a lender is going to be a bit leery. Hard credit inquiries could also hurt your credit score and possibly knock you out of contention for the loan.
- Major purchases: These can cause a similar red flag. In addition to any credit hits, lenders will need to consider any new debts in your monthly debt-to-income ratio.
- Moving money around: While you might be doing nothing wrong moving money from a checking to savings account or vice versa, lenders prefer “seasoned” funds – that is, money that has been sitting in the same account for a good long while.
It's important to remember that your closing timeline isn't entirely in your hands. However, with preparation, you can help ease the process and get to closing quicker.