FHA loans allow borrowers to purchase a home without the need for a large down payment or a high credit score.
These loans are backed by the Federal Housing Administration, an agency that works under the Department of Housing and Urban Development. Because of the FHA guarantee, lenders who issue this type of financing are protected if you default on your loan. As a result, they can be more lenient about the requirements needed to buy a home.
This makes FHA loans a popular choice for first-time buyers and those whose credit or finances would make it difficult to qualify for a conventional home loan.
The good news is that applying for an FHA loan is typically easier than applying for a conventional loan. You won’t have to save for a bigger down payment or contend with high credit score requirements.
When applying for an FHA loan, borrowers must provide certain information to an FHA-approved lender. The lender then evaluates this information based on FHA criteria and the lender’s own requirements.
The usual process for applying for an FHA loan goes as follows:
As a borrower, your first step should be to research FHA loan requirements. Understanding the eligibility requirements will help you decide if this is the right home loan option for you right now.
While requirements can vary slightly across lenders, you will generally need:
The next step is to find an FHA-approved lender. The majority of banks and mortgage companies offer this type of loan, so it shouldn’t be too difficult to find a qualifying lender. You can apply for an FHA loan at a bank, with an online mortgage lender or other private lender as long as they’re FHA-approved. Just be sure to find a lender that fits your needs and that you can meet their requirements before applying.
Once you’ve selected a lender, you will need to start preparing the necessary documentation. Lenders all require some basic personal and financial history as well as the property details of the home you wish to purchase.
The information you'll be required to provide may include the following:
Without this documentation, the lender will not be able to proceed with your application. To avoid delays, it’s best to gather this information before you start applying.
The next step in the process is to complete a Uniform Residential Loan Application, also known as the Fannie Mae Form 1003.
In this form, you must provide the property address and type of loan you want, as well as information regarding recurring debts, income sources, income amounts, housing expenses and previous/current employment.
At this point, you may also need to pay a fee for the mortgage application. If not, it will be included in the closing costs. This will depend on the lender, so be sure to check their policy.
This is an important step if you are applying to multiple lenders. You will want to compare each lender’s loan estimate (LE) to get the most favorable offer.
LEs are designed to make the loan process transparent. They will break down important elements of the offer such as the interest rate, monthly payments, closing costs and other information you need to make your decision.
Applying for an FHA mortgage is relatively straightforward. However, you will find it easier to get approved if you’re prepared to meet each of these requirements:
Only you can answer this as it will depend on your own financial circumstances and the lender you choose.
Before you apply for an FHA loan, you must show proof of at least 12 consecutive months of on-time payments for all financial obligations. Lenders want to see that you’ve consistently paid your rent/mortgage, bills, any debt you owe and other necessary expenses.
Aside from that, the ideal time to apply for an FHA loan is when you can meet the general requirements. It’s best to only apply once your credit score has reached at least 580 (ideally higher), and you have enough saved for a 3.5% down payment at your desired loan amount.
Following the guidelines above is a great place to get started. For additional information or to proceed with an FHA home loan application, speak with one of our lenders today.