How do I apply for an FHA loan?
An FHA mortgage is a great way to buy a home without needing a large down payment or perfect credit.
While supported by the federal government, FHA mortgages are available from virtually every private lender. So it's easy to apply and look for cheap prices.
You can start your application online and in some cases even close it online. Or, you can work one-on-one with a loan officer for additional assistance. You can choose your lender and how you want to apply.
Start Your FHA Loan Application (March 17, 2021)
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Steps to Applying for an FHA Loan
FHA loans are insured with the Federal Housing Administration, a branch of the Ministry of Housing and Urban Development (HUD).
Thanks to their state insurance, FHA loans can offer low down payments, lower credit requirements, and low interest rates. This makes them popular with first-time home buyers. But repeat buyers are also welcome to apply.
Although FHA mortgages are insured by the FHA, this agency does not lend money. You can get an FHA loan from a private lender just like you would with a traditional loan.
So the first thing you need to do is choose a lender to apply to.
1. Find a lender
The first step in getting an FHA home loan is finding an FHA approved lender. The good news is that the majority of banks and mortgage lenders offer this type of mortgage. Hence, it shouldn't be too difficult to find a lender.
You can get FHA finance from banks, mortgage lenders, credit unions, and online lenders. You can also use our Best FHA Lender Rating as a starting point.
The right lender for you depends on a few things. For example, if you have a lower credit score, you want to make sure your lender accepts the FHA minimum of 580 (some lenders set the bar at 600 or higher).
You should also think about how you would like to work with your lender. Do you prefer person-to-person interactions? Look for a local lender that is focused on personal and telephone loans.
If you'd rather go it alone, there are a variety of lenders available to help you complete most or all of the mortgage process online.
Find an FHA Approved Lender (March 17, 2021)
2. Apply for a loan
After you have found a lender, the next step is to submit a loan application.
Many lenders allow you to apply online. However, some connect you to a loan officer to fill out your application over the phone or email.
Because mortgage terms and interest rates can vary from lender to lender, you should check with multiple lenders to compare quotes. This will help you find the best deal.
Ideally, you should seek quotes from three to four lenders so you know you are getting the best interest rate and lowest fees available.
Lenders typically verify your balance before providing rate information and pre-approval. But don't worry about the impact on your score.
As long as you submit all of your mortgage loan applications within a 45 day window, they will be reported as a single loan request on your credit report, so your score will not be hit multiple times.
3. Provide basic details
Lenders need basic personal information and property details in order to start your mortgage application.
The first time you apply for an FHA loan, you will need to provide:
Your full name Your Social Security number A copy of your driver's license or other government-recognized ID Income informationHiring history The property addressPurchase price of the propertyDown payment amount
Once you've provided this basic information, the lender will request financial support documents to help verify your earnings, savings, and debts. Below is a list of supporting documents that you will be asked for.
4. Compare the credit estimates
After submitting a loan application, the lender must submit a loan estimate within three working days.
The Loan Estimate (LE) is a standard form used by all lenders. It is designed to keep the loan process transparent by providing upfront information about a borrower's estimated interest rate, monthly mortgage payments, and closing costs.
The LE also provides loan type and duration information so you know you are comparing mortgage offers on an equal footing. (For example, a 15 year FHA loan would have much higher payments than a 30 year loan with the same loan amount.)
Make sure that all of your loan offers contain the same loan type, loan term, and loan amount. Then compare the interest rates, annual percentages (APR), and upfront fees to find the best deal.
Compare FHA Loans From Multiple Lenders (March 17, 2021)
What documents do I need to apply for an FHA loan?
The first time you apply for an FHA loan, lenders ask about your income, savings, debts, and assets.
Once you decide to proceed with the loan, they will need proof of the information you provided. That means filing a variety of financial documents.
Borrowers are typically asked to provide:
Tax returns for the past two years W2s from the past two yearsBank statements from the last 60 days Financial statements for other assets (investment accounts and pension accounts) Current pay slips Stubof of other income such as social security or disability income Name and address of your employer in the last two years Self-employed
The lender will also pull your credit score and credit reports. By authorizing a credit check, the lender can view your credit history and review your current debt load and monthly minimum payments.
Requirements for Approving an FHA Loan
Applying for an FHA mortgage is pretty straightforward. But how do you know if you're likely to be approved?
The good news is that it is easier to qualify for an FHA loan than many other loan programs. Here's what you can expect:
Credit Score – FHA Home Loans Require a minimum FICO score between 500 and 580. (Most lenders require at least 580.) By comparison, a traditional mortgage requires a minimum of 620 FICO pointsCredit history – In the last 12 months, no more than a 30-day delay in payment is usually permitted. Additionally, you shouldn't have had a foreclosure in the past 3 years or a recent bankruptcydeposit – – FHA loans require a minimum down payment of 3.5% if your credit score is 580 or higher. If your credit score is between 500 and 579 you will need a minimum 10% depositLoan-to-Value Ratio (LTV) – The LTV compares your loan amount to the market value of the home. This is another way of expressing down payment requests. Since a minimum of 3.5% of the purchase price is required as a deposit, your credit-to-value ratio must be 96.5% or less. Closing costs – you are responsible for this too Closing costs, which are lender and third party fees. Closing costs vary by location, but are typically between 2% and 5% of the loan amount. These costs are added to your down payment so you will need to budget for both amounts. Debt-To-Income Ratio (DTI) – yours DTI ratio is the percentage of your gross monthly income that is used for monthly debt payments for things like student loans and credit cards. For an FHA loan, your DTI rate should typically not exceed 45%. Lenders may allow a higher DTI if you have offsetting factors like exceptional creditworthiness or large cash reserves. Typically, you are allowed to spend up to 31% of your gross monthly income on house payments
The house you want to buy must also meet the eligibility requirements.
For example, the house needs to be a primary residence, which means that you plan to live there all day. It can be a single-family house or an apartment building with up to 4 residential units (provided you live in one yourself).
And your loan amount cannot exceed the current FHA loan limits, which are $ 356,362 in most areas but are higher in certain high-cost residential markets.
Check Your FHA Loan Eligibility (March 17, 2021)
What happens after you apply for an FHA loan?
The typical time from application to completion of an FHA loan is between 30 and 45 days.
During this time, your credit file will be drawn. The underwriter will take a closer look at your application and review the supporting documents to make sure you meet the minimum guidelines for FHA funding.
The underwriter reviews your current debt and minimum payments, and then calculates your debt to income ratio. The underwriter will check your bank statements and other assets to make sure you have enough reserves for the down payment and closing costs. If your deposit was from a cash gift or deposit assistance, you will need documents showing the source (s) of the funds. The insurer will review your previous tax returns and W2 returns to confirm a two-year stable history. Consistent Income The insurer will review your most recent pay slips to confirm that you are still employed and earning income. The mortgage lender plans a valuation to determine the current market value of the home. You cannot borrow more than the property is worth
You should also schedule a home inspection after receiving a sales contract. A home inspection is not required for loan approval but is recommended as it can reveal hidden problems with the property.
If your listing has a satisfactory home inspection, you can ask the seller to fix these issues before closing.
During the underwriting process, your lender may request additional information. Don't panic – this is common when taking out a mortgage.
For example, if your parents give away your down payment and / or closing costs, your lender will request a gift letter. If you are receiving alimony, the lender may request a copy of your divorce decree.
Submit the requested information as soon as possible to meet the schedule.
Where can I apply for an FHA loan?
The FHA does not offer loans directly. So, you need to contact a private lender to apply.
The majority of lenders are FHA approved. So you can choose a local lender, a major bank, an online mortgage lender, or a credit union.
To find a good FHA lender, you can get referrals from friends or family members who have taken out an FHA loan. You can also check with the Better Business Bureau to check a bank or mortgage lender's rating and read reviews online.
Note that the loan requirements for FHA loans vary from lender to lender. While many lenders allow a credit score of only 580, some may set their minimum to 600 or even higher. If your score is on the low end of qualifying for an FHA loan, you may need to do a little more shopping.
Regardless of your credit score, you should find at least three lenders that you like and apply to them.
FHA mortgage rates can vary greatly between lenders and you won't know which one can give you the best deal until you've received personalized quotes.
Start your FHA loan application
Applying for an FHA loan is pretty easy. Once you've selected the lenders to apply to, their online systems and loan officers will walk you through the process step by step.
Make sure you have all of your financial documents on hand so the application process goes as smoothly as possible.
Most importantly, Apply to more than one FHA lender. This is the only way you can be sure that you will get the loan with the lowest interest rate. Keep in mind that even what appears to be a tiny difference in interest rates (0.125% or less) can cost you thousands of dollars over the life of the loan.
Fortunately, many lenders these days offer online pre-approval. So getting mortgage quotes and comparing interest rates can be relatively quick and painless.
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