What Happens When Your FHA Loan is Approved?

September 17, 2013

Did you know that in addition to all the other rules governing FHA home loans, there are regulations that govern what’s supposed to happen once your FHA loan is approved or denied? Those regulations are found in the FHA loan rules as published in HUD 4155.1.

When your FHA loan application is approved, Chapter One, Section A instructs the lender to act as follows:

“When a borrower is approved, the Direct Endorsement (DE) underwriter

• records the results of the credit analysis on the HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary
• enters any modification of the mortgage amount or approval conditions under “Underwriter Comments” on the form, and
• approves the borrower and authorizes closing, if the case is a DE case.”

Additionally, the lender is required to inform the borrower once the decision has been made. “The lender is responsible for notifying the borrower of the approval, either in writing or verbally, immediately after receipt of the underwriter’s decision. The term of the firm commitment or underwriter’s approval of the borrower, on page three of form HUD-92900A, HUD/VA Addendum to Uniform Residential Loan Application, is 90 days or the remaining life or whichever is greater of the

• Conditional Commitment
• U.S. Department of Veterans Affairs (VA) Certificate of Reasonable Value (CRV), or
• underwriter’s approval of the property, as appropriate.”

That covers what is to happen once the FHA loan is approved. But what about in cases where the borrower has been turned down for the FHA home loan? FHA loan rules don’t permit the lender to delay creating the proper paperwork and taking steps to inform the borrower of both the decision to reject the application AND the reasons why.

“When a loan is rejected, the lender must immediately complete

• a rejection notice consistent with the requirements of Regulation B and,
• when required, an Equal Credit Opportunity Act (ECOA) notice, forwarded to the borrower.”

The rules add that “At least one credit aspect” must be rejected before the lender can issue an overall rejection. According to Chapter One of the FHA loan rules in 4155.1, “The rejection notice must provide specific reasons for the rejection. Delinquent credit accounts need not be listed. The rejection notice must contain all the reasons for denial/ineligibility and any counter proposals to effectuate loan approval, such as reduced mortgage amount.” It’s important to note that the rules do require the lender to inform the borrower as to the reasons for the rejection--borrowers who feel their loan has not been handled properly should discuss the situation with the FHA to learn if there’s any further steps which may need to be taken.

For more information on these procedures or how they work, contact the FHA at 1-800 CALL FHA.