How to Apply for an FHA loan?
Even after the worldwide economic meltdown, loans from the Federal Housing Administration (FHA) are still in demand by home buyers like you looking to get into a starter home. The downturn in the economy made it harder to qualify for a mortgage, but FHA first-time buyer loans are still accessible and offer multiple advantages over a regular mortgage. Here are steps to take to apply for an FHA loan.
Check Your Credit Score
First, determine your credit score. According to Bankrate.com, the average credit score for FHA loans ranges from the low to high 600s. You can expect that your credit should be around 620 if you can come up with a down payment of three percent. In contrast, a regular loan requires a much higher credit score for the best rates. Some buyers are needlessly renting because they fear their credit score will prevent them from getting approved for an FHA loan. But standards vary quite a bit depending on the lender.
Review Current Average Mortgage Rates
Online mortgage calculator tools can help you determine the best mortgage rates. It helps to understand the economic forces behind mortgage rates and which ones are the best deal for you. Your mortgage rate will be influenced by your credit score, house location, amount of loan, mortgage points and the size of your down payment. One mortgage point is equivalent to one percent of the total value of a mortgage.
Get together the documents you'll need for your FHA-approved mortgage lender. Documentation you'll want to collect covers your savings, employment status, credit information and personal data. They'll want to look at your tax documents, job history, addresses of everywhere you've lived in the last couple of years, valid W-2 forms, addresses and names of employers, amount of monthly income and income tax forms for the past two years.
Find an FHA-approved Lender
FHA approved lenders are mortgage companies that have met the criteria set by the Federal Housing Administration. To find an approved lender, start with the Lender List search tool on the website of the Department of Housing and Urban Development (HUD).
Get Pre-Approval by a Mortgage Lender
It's always a good idea to get pre-approved by mortgage lender before shopping for a new home. Pre-approval means the mortgage provider believes you have the necessary down payment and that you are qualified to cover mortgage payments. Pre-approval will involve checking your assets, income and personal information. When you are ready to make an offer, the seller and real estate agent will ask to review your pre-approval letter.
How to Find Suitable Homes That Meet FHA Guidelines
Remember that not every home is approved for an FHA loan. Lenders must check an appraisal inspection report which is prepared by an appraiser approved by the FHA. This is critical to ensure the home meets insurance coverage standards. In addition, a house that costs too much will not qualify for an FHA loan. Loan limits are set by HUD, and the FHA will only insure a home within these guidelines. Also, a home may not be approved if it is in poor condition based on the appraiser's evaluation.
Why the Program Is Popular with First-Time Home Buyers
First-time home buyers represent more than three quarters of FHA home purchases. FHA loans are popular with first-time home buyers who often don't have the resources to come up with a large down payment. Qualified applicants only need to provide 3.5 percent of the purchase price as a down payment, while regular mortgages require five percent and up. Further, since the federal government is insuring the loan, it's easier to qualify for an FHA loan under the program. Follow these steps and suggestions, and you are well on your way to procuring your first-time buyer loan from the FHA.