A lot of home buyers who are considering the FHA loan program have questions regarding the timeline. One of the most common questions is: Do FHA loans take longer to close, when compared to regular or conventional mortgage loans?
The short answer is yes.
Industry data show that FHA loans do take longer to close than conventional, at least on average. But the difference between their average closing times is typically just a matter of days. For most borrowers, that’s not a big deal.
FHA Loans Take Longer to Close On Average
Before we go any further, we should clear up some of the terminology being used here.
An FHA loan is simply a mortgage loan that gets insured by the federal government, via the Federal Housing Administration. This government backing makes them easier to qualify for (in general). But the loan itself is still generated by a mortgage lender within the private sector.
A conventional home loan, on the other hand, does not receive any form of government guarantee or insurance. You might think of it as a “regular” mortgage loan.
According to data provided by ICE Mortgage Technology, FHA loans take a little longer to close, when compared to conventional (non-government-insured) mortgages. This is based on the company’s “Origination Insight Report.”
ICE Mortgage Technology is a company that provides software and related services to the mortgage industry. Their platforms are used to process thousands of home loans each month. Their “insight reports” live up to their name, giving us some good insight into current mortgage trends.
Let’s Look at the Data
We looked at the company’s most recent insight report (at the time this article was published) to compare the average closing times for FHA and conventional loans. And it’s clear that FHA-insured mortgages do take longer to close, on average.
Here’s some data from their June 2021 report, the most recent one when this article was published:
- FHA loans took an average of 54 days to close. This applies to refinance and purchase transactions.
- Conventional home loans took an average of 47 days to close for refinancing, and 49 days for purchases, for an overall average of 48 days.
(Note: In this context, the “time to close” is defined as the length of time between the initial mortgage application and the final funding.)
Granted, this is just a snapshot for one month out of the year. The average number of days it takes to close can vary from one month to the next. But despite these variations, it seems that FHA loans always take longer to close when compared to conventional.
It’s also important to remember that these are average closing times. Every mortgage scenario is different because every borrower is different. There are a wide range of factors that can influence the closing timeline. They include everything from the house-hunting process to mortgage underwriting.
With that being said, the data clearly show that FHA loans take longer to close than conventional, on average.
What Accounts for the Different Timeline?
Based on the above data (and similar reports), it’s clear that the closing timeline is a bit longer for FHA loans when compared to conventional. But there are no reports or studies that might tell us why that’s the case.
Even so, we can make an educated guess.
For one thing, the FHA loan program is a government-run program. As such, there are certain government-imposed requirements and guidelines for FHA loans that might not apply to conventional mortgages.
For example, with an FHA loan a home appraiser must review the property to ensure that it meets the minimum requirements set forth by HUD. But that’s not the case with a conventional loan. There can also be some additional paperwork associated with FHA loans. This could be one reason why they take longer to close when compared to conventional mortgages.
Additionally, many of the people who use the FHA program have been turned down for conventional mortgage financing in the past. The reasons for this vary, but it often has to do with credit-related problems in the past. Such issues can require a more thorough underwriting review process, and sometimes more paperwork. This too could contribute to the longer closing timeline.
But we’re getting into speculation here. The one thing we do know is that, on average, FHA home loans take longer to close when compared to conventional.
Disclaimer: This article includes data relating to the average closing time for different types of mortgage loans. Every lending scenario is different and can be influenced by a large number of variables. As a result, your mortgage and closing experience could differ from the averages presented above.