First-time and subsequent home buyers can take advantage of the benefits of an FHA loan as it makes it easier to purchase a home when you have little funds to put down or have exceptional circumstances, such as less than perfect credit or a higher than average debt-to-income ratio. The FHA has less stringent guidelines than conventional loans, which means if you cannot qualify for the Fannie Mae 97% LTV loan, you may be eligible for an FHA loan.
Who is Eligible?
Contrary to popular belief, anyone can apply for an FHA loan, not just first-time homebuyers. This means that as long as you are a resident of the United States, have a steady job, and decent credit, you should be able to apply. If you currently own a home with an FHA loan that will not be sold in order for you to purchase your new home, then you will likely not be eligible, but once that home is sold or if it is being sold at the same time, you will likely be a good candidate for the loan. The only exception to the rule is those applicants that have not paid any Federal debts that are either outstanding now or are were paid late recently.
Applying for an FHA Loan
The application process for the FHA loan works much the same as a conventional loan. The first step is to find an FHA approved lender. There are hundreds in each area, but not every bank or lender will offer them, so make sure to do your homework first. Once you find a lender, you will need to fill out a loan application and disclose the general information that is needed to apply for a loan. This information includes:
- Name and address
- Social security number to pull your credit
- Job information
- Income information
- Asset information
- Past credit history information
This information will be used to create a pre-approval for you. If you have already found a home and are skipping the pre-approval process, it can be used to start your loan file and to create an approval for you. If the loan will be in active process, then you will need to provide all of your supporting documentation to prove that the items that you wrote on the loan application are in fact true. The loan officer will ask for additional information as necessary, depending on the status of your loan and how well the information is documented.
Make sure you are Ready
When you apply for an FHA loan, make sure that you are ready if the loan were to get approved. This means having adequate funds to pay the upfront mortgage insurance and any closing fees that cannot be rolled into your loan. If you do not have the funds, you may be able to accept gift funds in order to obtain the loan or in some cases, the costs can be rolled into your loan.
Every case is different and will depend on what the lender requires. The FHA has their standard procedures, but every lender can create their own guidelines in order to protect themselves. Since the FHA is not providing the funds for the loan, simply the insurance to back the loan up, it is up to the lender to decide what level of risk they are willing to take in order to ensure the solidity of your loan. If you get turned down by one FHA lender, you can always apply with another. Even if you are approved, sometimes getting two approvals to compare to one another can be beneficial for you.