8 Steps For FHA Mortgage Application Process
Home ownership is a big American dream. The US government has long introduced many schemes and organizations to make it possible for Americans and foreigners to try and take up a permanent residence in their country. With the advent of Federal Housing Administration (FHA) home loans for people having bad credit background, more than usual low income, foreclosures and even bad cases of bankruptcy are available with certain requirements. If we compare FHA with our regular mortgage providing organizations then FHA is far more affordable and easier to qualify for.
Before applying for an FHA house loan one must follow some simple rules and easy steps which would make the application process for the mortgage a whole lot easier. Following are the steps for the application and approval process of a home loan from FHA.
- Meet the minimum FHA requirements:
Though FHA has a very lenient policy for people who usually don’t qualify for the high standards of lenders but there are certain requirements that one must meet before applying for an FHA home loan. You must meet the minimum possible FHA standards for loan approval and following are the main requirements:
- The first requirement includes having a steady job of about two years which includes a constant or increased salary for the same time period.
- You are allowed to have a minimum credit score of 580 and in most cases in can be 620 with the exception of having only 2 30-day late payment.
- FHA has a 2 year waiting time period for bankruptcy and a 3 year waiting period for foreclosure so it means that you cannot qualify for the loan if you have declared either of the above in the mentioned time period.
- You are required to take up residence in the property you are buying. It means that you must prove that you will live in the property you are buying.
- You must prove that you have sufficient amount of money to pay the down payment of your loan.
If you meet the above requirements then you have high chances of getting your application approved.
- Availability of necessary documentation:
Another important fact in the FHA application process is that you have all the necessary documents and records available for the lender`s requirements. FHA lenders require documents including complete tax return details of the last two years, investment statements, retirement statements, previous loan statements and credit card bill history.
- Signing up for a mortgage insurance:
FHA is likely the only organization that offers 3.5% down payment which is the least that is offered by any home loan lending firm. For those who have decided to apply for the loan for less than 5% down payments of the total cost of the loan have to sign up for a required mortgage insurance. This insurance is for the protection of the lenders in case you fail to pay the loan. There are different rates for mortgage insurance which can be done by discussing it with your lender.
- Processing of loan:
After you have provided all the necessary information and documentation the FHA lenders will verify every inch of the details you have provided. They will verify your bank statements, credit card bills, tax records and so on.
- Loan application:
After the loan has been processed by FHA, your lender will send you a proper and relevant application documents. It is advised to fill all the information in the application with great care because any wrong information forged in the application will be considered as a crime. The application is sent to an underwriter who will review it and your files to publish a decision. If you meet all the necessary requirements for an FHA loan then your application will be approved. If there is further need of any additional document or information then your application will be temporarily suspended. If your application fails to meet the guidelines then your application will be denied.
- Property appraisal:
Having your application approve doesn’t necessary mean that the application won`t be denied. After your application has been accepted, FHA performs an appraisal on the property you intend to buy and inspect it. The appraisal is done to make sure that the property you want to buy meets all the safety measures to ensure a healthy living and to determine the value of the property. Your loan can be denied if the appraisal doesn’t fit the mentioned FHA guidelines.
- Signing of final FHA loan documents:
Lenders prepare FHA loan document after the approval of the application and the appraisal. The documents include monthly loan payments and interest rates which should be read carefully. Moreover they also prepare a deed of trust to insure loan security. Everything in the document should be considered with a focused mind because once the document is signed then you are tied lawfully with mortgage and there isn’t any easy way out of it.
- Loan considerations:
FHA is preferred because it doesn’t suffocate its clients with heavy standards of meeting perfect bank statements and credit history. FHA is a life savior of many those who can`t approved for a loan somewhere else due to high loan requirements. But FHA comes with a few restrictions and parameters that need to be considered before the application is processed.
- An FHA loan approval can take a while because you might have to go through lengthy appraisals in order for your property to pass through their requirements. This process can take a while.
- You may face delays in many forms such as re-appraisals, problems in closing the loan and so on. The delay may take up to four weeks if any issue arises in the settlement.
- Choosing to apply for a FHA mortgage means that you have to pay two kinds of mortgages which includes Upfront Mortgage Premium Insurance (MIP) and an Annual MIP. The Upfront MIP is the amount which is 1.75% of the home loan which is can be paid as a lump sum amount or as mortgage payments. The second payment is related to your Annual MIP which is the cost cumulated from your loan-to-value ratio, time for loan payment and the size of the loan for which you applied.
- Before applying for any kind of loan it is advised to keep a tight schedule and savings for the down payments of the loan. You must also need to meet a loan-to-value ratio which will determine whether your income is compatible enough for your monthly mortgage payment.
The above steps are the general summary of how to apply for an FHA home loan application and what scenarios you need to carefully look into before binding yourself legally with a contract. If you need further help then you can also opt for the counseling agencies set up by the US Department of Housing and Urban Development (HUD). These counseling can sessions will provide you a point to point details of everything you need to know about from applying for a home loan to getting approved for it.