With its significantly lower down payment rate and less stringent credit qualifications, the FHA loan could be an ideal choice for those who want to buy a home but haven’t been able to save much money for the purchase.
If you’re interested in learning how to apply for an FHA loan, read on and find out.
What is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration, a federal body that establishes guidelines for building and financing homes in the United States.
When a mortgage is FHA-insured (also known as FHA-backed or FHA-guaranteed), the FHA will step in and cover some or all of the lender’s financial losses in the case of a foreclosure. Because of this additional security, these loans have lower interest rates and reduced down payment requirements.
To qualify for an FHA loan, you must meet minimum borrower standards, which include a credit score of at least 580 and a down payment of 3.5 percent.
Different types of FHA loans
FHA loans are available in either fixed-rate or adjustable-rate formats. A fixed-rate loan has a fixed interest rate for the duration of the loan, whereas an adjustable-rate mortgage has a variable interest rate.
There are also FHA financing programs for specific uses. Among these are:
● FHA 203(b) loans: These are the first things that come to mind when most people think about FHA loans. FHA 203(b) loans can be used to buy or refinance a property with down payments as low as 3.5 percent.
● FHA 203(k) loans: Also known as 203(k) Rehabilitation mortgages, these loans allow borrowers to finance qualified home repairs and renovations.
● EEM loans: This type of FHA loan assists homeowners in financing home upgrades that minimize energy consumption on the property. You can use it to buy a home and make eco-friendly upgrades or improve that of a
home you own.
● HECMs: Home Equity Conversion Mortgages are sometimes known as reverse mortgages. This loan allows homeowners over the age of 62 to convert the equity in their property into a source of income.
● FHA Streamline Refinance: FHA loans also have a streamlined refinance option for existing homeowners who already have availed of the program. It’s sped-up refinancing; less paperwork and, often, no credit check is needed.
The mortgage pre-approval process varies based on the lender or platform, but it usually
entails filling out some basic information.
- Fill Out Loan Application
This procedure is a little more involved in pre-approval. You may apply online, by telephone, or in person. You may authorize the lender to pull and review your credit report to see if you qualify based on your FICO scores. - Provide Financial Documentation
Your loan officer will inform you of the specific documents you’ll be required to furnish. This should include recent pay stubs, W-2s, tax returns, bank account statements, and other documents. - Have your file Underwritten for Pre-Approval
Submit your application and complete file to the Underwriter for pre-approval. After the underwriter reviews your file, you will be given a list of conditions and additional documents needed for full approval. You will be given a pre-approval letter at this point to share with your realtor so you can start shopping for a home. - Make an Offer to Purchase
Your realtor will guide you and submit an offer to purchase the property of your liking. When the seller accepts your offer, it’s time to get the property inspected and appraised. - Submit Additional Paperwork as Needed
As your mortgage is processed and underwritten, your loan officer may require extra paperwork, so stay in touch with your loan officer to verify everything is in order. - Close the Loan
Once everything’s set, your lender will schedule the closing appointment. Pay the down payment and closing costs, sign the documents, and get the keys to your new home!
