Can My FHA Loan Be Turned down During the Underwriting Process?

Reader concern: “We are currently in the process of applying for an FHA loan. Actually, we have already found a house and made an offer to buy it. The seller accepted, and then we gave our purchase agreement back to the lender that pre-approved at the beginning of the whole process. Our loan officer told us that our application file has been sent to the underwriter. My question is, is it possible for an FHA loan to be turned down during the underwriting process? Or are we on the ‘home stretch’ at this point?”

I wouldn’t start picking out curtains just yet. You’re not on the home stretch, as you call it, until the underwriter gives you the all-clear to close on the loan. And a lot can happen during the underwriting stage.

I don’t mean to sound negative, and I hope everything works out for you. But at the same time, you have to be realistic. Yes, an FHA loan can still be rejected during the underwriting process. In fact, this is the stage where many mortgage loans are turned down — and for a wide variety of reasons.

Getting Turned Down During the Underwriting Stage

There are two stages of the process where your loan might be denied. It can happen on the front end, during the initial application process. It can also happen during the mortgage underwriting process. (Problems can also arise during the actual closing or settlement process, but this is rare.)

It sounds like your loan officer gave you an initial approval for your FHA loan. This is sometimes referred to as the pre-approval. “Pre” is the key part of that term. It’s not a final approval at this stage. The final approval comes after the FHA underwriting process, once the underwriter has given you a “green light” to close.

While the process can vary, it usually goes something like this:

  1. The home buyers / borrowers approach a mortgage lender to find out how much they can borrow toward the home.
  2. The loan officer will review their financial credentials and give them a maximum loan amount. This is known as the FHA pre-approval process.
  3. The buyers will then go out and find a house that meets their needs, and make an offer to buy it.
  4. Once the seller accepts their offer, the buyers will take their purchase agreement back to the lender.
  5. Next comes the FHA underwriting process. The underwriter is a separate person or department from the loan officer. It is the underwriter’s job to ensure the loan meets all of the HUD / FHA requirements, as well as the lender’s requirements for mortgage approval. This is their one and only purpose.

The underwriter will do a more thorough examination of the borrower’s credentials, compared to the upfront review done by the loan officer. So it’s possible for the underwriter to find negative factors the loan officer overlooked. In fact, it happens all the time.

So yes, your FHA loan can still be denied / rejected, even though you’ve been pre-approved by a lender. It’s fairly common for mortgage loans to be turned down during the underwriting. That’s the whole point of this process. It’ i a final and careful review of the applicant’s credentials and qualifications for financing.

The only thing you can do at this point is stay in touch with your loan officer. If something comes up during the FHA underwriting stage, he or she will let you know.

Dealing With ‘Conditions’ from the FHA Underwriter

Don’t be surprised if the loan officer gives you a set of “conditions” you must meet in order to get a final approval. This occurs when the underwriter finds certain issues that are not necessarily deal-breakers, but must be resolved before the loan can be approved. These so-called conditions for approval are a common occurrence. If you satisfy all of the conditions, the FHA loan will likely be approved.

Or you may not get any conditions at all. You might sail through the FHA underwriting process unscathed. Only time will tell.

Disclaimer: This article answers the question, Can an FHA loan be turned down after pre-approval and during the underwriting process? This information has been provided for educational purposes only and does not constitute financial advice. Every mortgage scenario is different. This article includes generalizations regarding FHA underwriting, processing and approval. These generalizations may not apply to your specific situation.