An FHA loan is obtained through the Federal Housing Administration mostly by applicants who do not qualify for conventional loans under current market conditions. The minimum qualifying conditions require a 580 Fico Score and a minimum 3.5% downpayment (cash-in-hand). There are also other contingencies such as not having been bankrupt for the last 2 years, have not been foreclosed on for at least 3 years, and the housing being applied for must be your primary residence. There are also other factors that come into play such as any delinquencies and late payments on your credit report. For the most part, if you meet the aforementioned credit requirements you will be qualified.
An individual may apply for an FHA loan as long as it meets the sales price requirements provided by HUD (Maximum FHA Limits – By County) and is either a single family home, duplex (2-family), 3-family, or 4-family.
Choose Type of FHA Loan
There are four (4) types of FHA loans:
- FHA Home Loan – The most traditional, where an individual finds a residence he or she would like to purchase that will be their primary residence.
- FHA Refinance – If an individual would like to convert their current FHA loan into a new one. The purpose of this may be to change the terms to better fit their situation.
- FHA 203k (“rehab”) Loan – If a homeowner would like to make repairs on their home.
- FHA Construction Loan – If an individual is looking to build a new residence.
After deciding which type best matches your needs it is time to find the best rate and financial terms for your needs.
Find a Lender
There are many lenders under the FHA program, and there is a lot of variation between them. While the FHA has their minimum requirements to qualify for insurance, the loan itself is given by the individual lenders; these lenders typically have their own standards. So while you may not qualify for an FHA loan with one lender, you could have more success with another. The interest rates and fees for different lenders are also set individually. So it is worthwhile to get pre-approval from a few lenders and compare the rates offered to you.
Applying for the Loan and Finalizing
Once you are pre-approved for an FHA loan, your lender will require documentation to verify that the claims made to get pre-approved are, in fact, true. This includes The last two years of your employment history, a current pay stub, your banking information, and the last two years of your tax returns. You also need to have the home appraised by an FHA approved appraiser, to make sure the home meets FHA standards.
Once all of the paperwork is processed, it will be time to finalize the loan. Before you sign, you will need legal identification, and the funds to pay the closing cost. It is very important to read over the entire mortgage contract before signing, as after you have signed the contract legally binds you to the terms established inside it.