Broker vs. Direct Lender
FHA loans are government-backed loans funded by approved lenders. Some FHA lenders are direct lenders, which means they provide the money for the loan directly. Others are brokers --- middlemen that take an applicant's loan information and shops it to several wholesale direct lenders in a search for the best terms. Brokered loans can take more time than direct loans, since two different sets of eyes review each file. The broker processes the loan first, and then the underwriter for the lender reviews the file. There is often as much as a few days between these steps for the file to get from the broker to the appropriate person at the lender's office. Direct lenders do not have this additional lag time, since all the key players are typically in the same building.
Many times the application process is not completed properly, resulting in a delay. The application may not contain all the necessary information, the supporting documentation may not be complete or the information on the application does not correspond with documentation. For quickest results, the applicant should bring all necessary documentation to his loan application appointment and provide the proper contact names and information for the appropriate place to get verification. The processor orders independent verification of employment and deposit for every file and needs this information.
FHA appraisals can sometimes take a little longer than a conventional appraisal, especially for manufactured homes, since there is additional information required by FHA guidelines. Depending on the condition of the property, there may also be expert inspections that need completed before the appraiser can sign off on the appraisal, such as a structural inspection on a manufactured home.
All purchases and sale contracts and addenda must be complete and correct. The FHA has forms that must accompany any purchase and sale contract, signed by both the buyer and seller. If the buyer does not know at the time of contract that she is using FHA financing, she will have to track down the seller to get a signature on the necessary forms. This can take several days, depending on the cooperation level and timeliness of the seller. With short sales and foreclosures, which go through an attorney or bank, it can even take weeks.
A big source of delays in processing an FHA loan is underwriting conditions. Many FHA loan files are "manual underwrite" files that are personally reviewed by an underwriter because they contain an exception or fall into a gray area. It is up to the underwriter to approve the file or not. Many times, the underwriter may ask for additional documentation or clarification on a contested item in order to make a decision. She will make loan approval conditional on that item, so the longer it takes to get it and for her to look it over, the longer the loan will take. Complete, thorough documentation that covers all contingencies from the start helps to prevent this. A processor can take out any unnecessary information or hold it aside in case the underwriter asks for it.