Why Might Your FHA Loan be Delayed?

Out of the many mortgage options available, FHA loans can offer a path to homeownership for first-time buyers who feel a home purchase may be out of their reach. An FHA loan is a government-backed loan insured by the Federal Housing Administration and offered by approved lenders that make buying a home more affordable for first-time buyers and low-to-moderate income families.

The process of getting an FHA loan is similar to securing most other conventional mortgages. However, even though the steps are the same, there are a couple of potential pitfalls that can pop up and delay or even halt your loan process. In this article, we will outline these issues so you know how to avoid them and ensure your FHA loan application stays on track. 

Changes in credit during the FHA loan application process

A huge mistake some borrowers may make during the mortgage application process is thinking that staying on top of their credit ends once they are pre-approved. Your credit score is one of the key financial factors that your lender will look at to determine if you are fit to take on the responsibility of paying back your FHA loan. So, if your credit changes negatively at any time during the application process, your lender may have to re-verify your ability to afford a loan.

It is smart to take steps to improve your credit score as much as possible prior to applying, that way you have a better chance at being pre-approved and receiving a lower interest rate. However, even after your lender provides you with a pre-approval letter, it is important to maintain your credit score up until you are signing the closing documents. Your lender will pull your credit report at least twice during the homebuying process—once when you apply for the FHA loan and then again just before the loan closes. This means being careless with your credit at any point during the process can result in your loan application being denied.

Here are some actions to avoid, as they negatively impact your credit score:

• Taking out a new loan (personal loans, car loans, or leases, and so on.)
• Opening a new credit card account
• Making a large purchase
• Missing a payment

Applying for an FHA loan after major financial troubles

Buying a home is exciting, but getting too eager can result in a delay in obtaining your FHA loan. It is vital that you give yourself enough time to financially prepare for the responsibility of taking on a home loan. That way, you can avoid delays in the homebuying process or outright rejection from a lender.

Major financial troubles include:

1. Bankruptcy or foreclosure: If you are applying for an FHA loan too soon after a bankruptcy, foreclosure, or a deed in lieu of foreclosure, you will be required to wait out a mandatory “seasoning period.” This is a set waiting time determined by the FHA and your lender that you must adhere to before applying for a new mortgage.
2. Delinquency on a home loan: If you are currently delinquent on an FHA loan, you will be required to wait a minimum of one to three years (or more depending on your lender’s requirements) before you are eligible to apply for a new mortgage.

Required home repairs found during the appraisal

Any home that is being purchased with an FHA loan will require an FHA appraisal to verify that the home you are buying is safe and high quality. Since the FHA loan qualifications are often more achievable for borrowers to meet, there are stricter appraisal requirements in place.

The appraisal should take place within a few days of the seller accepting your offer. It must be conducted by an FHA-approved appraiser, so the timeline may vary depending on your lender’s process and the appraiser’s availability. Your appraiser will conduct a rigorous assessment of the home to uncover any problems that may be present.  Property guidelines are stricter for an FHA loan, so it is not uncommon for the appraiser to call out certain things that need to be fixed before funding, including:

• Dry rot (interior and exterior)
• Broken windows
• Exposed wiring
• Exterior doors that do not close right
• Missing appliances
• Old roof that will not last for three more years

If the appraiser makes note of any problems with the home, your lender may require repairs before they approve the FHA home loan. It is the responsibility of the seller to make the necessary repairs. Typically, the FHA allows the homeowners 120 days to bring the property up to FHA standards.

The appraisal estimate is lower than the asking price

Other than required repairs, another setback you may face during the FHA appraisal process is if the home is appraised for a lower value than the seller’s asking price. In these cases, the FHA will not insure the home loan until one of two options is decided on:

1. The seller reduces their asking price to one that reflects the home’s market value.
2. You are able to use your own funds or another form of financing to make up for the difference. (Note: this option means you will pay more for the home than it’s worth.)

If neither of these options are agreed upon, then you may have to walk away from the purchase and continue house hunting.

Submitting incomplete or inaccurate info on your FHA loan application

Honesty is always the best policy, especially when it comes to purchasing a home. All of the documents and financial information you provide throughout the homebuying process will be thoroughly reviewed by your lender down to the smallest detail. Of course, mistakes do happen and you will have opportunities to clarify or fix incorrect information. It is important to contact your lender as soon as you discover any mistakes that may have been made on your application and give them the correct details.

However, if your lender suspects you of fraud or submitting incorrect documentation on purpose, it is very likely they will reject your mortgage application. In the worst case scenario, reporting inaccurate information can result in serious legal ramifications.

A natural disaster occurs before closing

It is no secret that natural disasters are on the rise, affecting various areas of the country at any given time. And sometimes the worst-case scenario happens—the home you have set your sights on is caught in the crossfire of mother nature. So what happens when a home is damaged prior to closing? It depends on the severity of the damage. If the damage to the home, as a result of a fire or flooding, is 10% or less of the purchase, then the homebuyer is obligated to purchase the property. In cases where the damage to a home exceeds 10% of the sale price, then you are within your rights as a buyer to terminate the contract and look for a new home.

Do not be discouraged

Not all home purchases are a linear process, but preparing for bumps in the road can help you mitigate stress and set you up for homebuying success no matter what happens. While you can not dictate the weather or foresee everything, it is important to know what elements are within your control so you can avoid making mistakes that will delay your FHA loan.

Stay positive, and good luck!