How to Apply for an FHA Loan

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Updated: May 31, 2024

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Applying for an FHA loan can be straightforward if you know what to expect and prepare. From eligibility to closing, we'll walk you through how to apply for an FHA loan and provide tips to improve your chances of success. We'll also cover things that can significantly influence your FHA loan's overall affordability and suitability. These include selecting the right FHA lender, which affects the terms and rates you receive, and understanding loan costs, which impacts your budget and prevents surprises.

Key Takeaways

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Verify your eligibility for an FHA loan by ensuring you meet age, residency and creditworthiness criteria to facilitate a smoother application process.

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Understand all associated costs, including upfront and ongoing mortgage insurance and closing costs, to budget effectively and avoid unexpected expenses.

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Recognize the roles and impacts of appraisals and inspections, which can guide your negotiations and save you from costly mistakes.

What Is an FHA Loan?

An FHA loan is a type of home loan that the Federal Housing Administration (FHA) insures. Unlike conventional loans, which are not backed by the government, FHA loans offer the security of federal insurance. This makes them especially beneficial for first-time homebuyers, those with less-than-perfect credit or anyone struggling to save for a large down payment.

One of the most significant advantages of an FHA loan is the lower credit score requirement, often as low as 580. These loans also require smaller down payments, sometimes as little as 3.5%. However, they also come with the added cost of mortgage insurance, which can increase your monthly payments.

If you plan to apply for an FHA loan, understanding these details will help you decide if it's the right choice and set you up for financial success in your homeownership journey.

Ensuring Your Eligibility

Borrowers who are at least 18 years old and legal U.S. residents with a valid Social Security number can apply for an FHA loan. However, even if you meet these initial requirements, you must also demonstrate your creditworthiness through the following:

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    Credit Score and Down Payment

    You’re eligible for an FHA loan with a credit score of 500 and a 10% down payment. A credit score of 580 allows for a minimum down payment of 3.5%.

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    Debt-to-Income Ratio

    Ideally, your DTI ratio must be under 43%, but exceptions may apply for those with compensating factors like high income or excellent credit.

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    Employment and Income

    Maintain a stable work history for the past two years and keep employment records readily available.

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    Foreclosure History

    To qualify, you should have no recent foreclosures within the last three years.

Property eligibility is also essential for FHA loans. The home must meet specific safety and livability standards and serve as your primary residence.

Selecting an FHA Lender

Once you've ensured your eligibility for an FHA loan, selecting the right FHA mortgage lender is your next step. A lender who understands your financial situation and offers competitive rates will significantly influence your loan experience. Here are some that you may want to consider:

Mortgage Lender
State Availability
Online Application
BBB Rating
Customer Service Hours

49

Yes

A+

Monday to Friday, 8 am to 5 pm ET

50

Yes

B+

Monday to Friday, 8 am to 9 pm ET Saturday and Sunday, 9 am to 9 pm ET

50

Yes

A+

Customer service number not on website but help center is available 24/7

47

Yes

A+

Monday to Friday, 8 am to 8 pm ET Saturday, 8 am to 5 pm ET

Each lender may have additional requirements. We recommend contacting them directly to get specific details and ensure you meet all their criteria for an FHA loan. Always check for lenders that are local to your area of purchase interest. Real estate agents often work with preferred lenders who may have special knowledge of the market in a particular region.

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FHA LOAN COSTS

Understanding the costs associated with FHA loans allows you to plan your budget effectively. Initial expenses include an upfront mortgage insurance payment, protecting the lender in case of default, and various closing costs.

You'll also face a recurring monthly mortgage insurance fee added to your payment, lasting for the life of the loan (if you paid less than 10% down payment) unless you refinance your mortgage.

Preparing FHA Loan Paperwork

Proper documentation is a key step in applying for an FHA home loan. Having the right papers in place can speed up the process and improve your chances of approval. Here are the typical documents you'll need:

  • Photo ID and Social Security Card: Confirm your identity and legal status. Without proper identification, you won't get past the first step.

  • Proof of Employment and Income: Usually, pay stubs, W-2 forms or tax returns. Lenders want to know you have a stable income to make payments.

  • Credit Report: Details your credit history. A good credit report can help you secure a lower interest rate.

  • List of Debts and Monthly Expenses: Including loans, credit cards and utility bills. It helps lenders assess your debt-to-income ratio.

  • Bank Statements: Provide lenders with a snapshot of your financial health, including your saving and spending habits, which can ultimately influence their decision on whether to grant you the loan. Show at least two months' worth for a more comprehensive view.

Incomplete or inaccurate paperwork can lead to delays or even rejection of your application. Keep a dedicated folder or digital space for all your documents to stay organized. You can find official forms and templates on the FHA's website or through your lender.

Completing Your FHA Loan Application

After gathering the necessary documents, you’ll need to complete your application accurately. Here’s a step-by-step guide:

1
Provide Your Personal Information

Begin your application by accurately entering your full name, date of birth, address, employment history and financial details, such as income and debts.

2
Review for Accuracy

Carefully check all entries to ensure completeness and correctness. Common mistakes such as misspellings, typos or incorrect numbers can cause delays or lead to denial.

3
Verify All Signatures Are Present

Confirm that your application includes all necessary signatures.

4
Update Outdated Documents

Ensure that all accompanying documents are current. Replace any expired or outdated items before submitting your application.

5
Submit Your Application

Submit your application according to the lender’s instructions. You can typically expect feedback or additional documentation requests within 30 to 45 days.

Be prepared with extra documents. Lenders may ask you for additional information like bank statements or tax returns, especially if you have an unusual employment history (freelance work or recent job changes, for example).

Getting an Appraisal and Inspection

A home appraisal determines the market value of a property, helping lenders ensure the loan amount doesn't exceed the property's worth. Lenders require it to protect their investments. If the appraisal is lower than the asking price, you can negotiate or withdraw. A home inspection assesses the condition of a home, checking everything from plumbing to electrical systems. Although optional, it's usually worth doing since it helps you identify potential costly repairs before finalizing your purchase. Sometimes, foregoing an inspection can make your offer more attractive to a seller. However, significant inspection findings can lead to major repair requests or price adjustments, so don't waive it unless you're confident that you won't be surprised after a walkthrough.

Closing Your FHA Mortgage Loan

As of January 2021, ICE Mortgage Technology reported that closing an FHA purchase loan took about 62 days. Familiarizing yourself with this timeline can help manage expectations and reduce stress. At closing, review your loan terms carefully to ensure that interest rates and payment details are as agreed. Then, you’ll sign documents like the promissory note and mortgage agreement and work with a lawyer to make everything official. After paying closing costs, loan funds are usually disbursed within a day.

Frequently Asked Questions About Applying for an FHA Loan

Explore these commonly asked questions to better understand how to apply for an FHA loan.

What rates can I get for an FHA loan?
Can you apply for an FHA loan online?
How is an FHA loan different from a conventional mortgage?
Can I apply for an FHA loan with a co-borrower?
Can I refinance an FHA home loan?
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