How to Apply for an FHA Loan

If you're considering buying a home, an FHA loan can be a great option for turning that dream into a reality. These loans, insured by the Federal Housing Administration, are designed to help those with lower credit scores or smaller down payments qualify for home financing.

Whether you're exploring how to get an FHA loan or are ready to submit your FHA loan application online, we’ll guide you from start to finish.

Questions to Ask Yourself Before Applying for an FHA Loan

Before starting your FHA loan application, it's important to take stock of your current financial situation and readiness for homeownership. After all, purchasing a home is a significant financial commitment that requires careful planning and consideration.

Consider the following questions to help you get started:

• Are you financially prepared?: FHA loans have lower down payment requirements, but you still need to budget for the initial costs of homeownership, including closing costs and property maintenance.
• Is your credit score in good shape?: While FHA loans are more flexible with credit scores, having a higher credit score can still improve your chances of approval as well as lower your interest rate.
• Do you meet FHA loan requirements?: Make sure you meet the minimum requirements for an FHA loan, such as steady employment and income.
• Are you buying a primary residence?: FHA loans are designed for owner-occupied homes, not investment or vacation properties.

FHA Loan Application Process

The FHA loan application process involves several steps, from getting pre-approved to closing on your new home. Here's a breakdown of the steps to expect to navigate when applying.

1. Find a Reputable FHA Lender

Choosing the right lender is crucial when applying for an FHA loan. A great lender not only offers competitive rates but also guides you through the process, ensuring you fully understand each requirement. Here’s what to keep in mind when selecting an FHA lender:

• Shop Around and Compare: Not all lenders are created equal, and their offer terms can vary significantly. It’s a good idea to check with multiple lenders to compare their interest rates, fees, and loan terms. Even a slight difference in your FHA loan rate can significantly impact your monthly payment and overall loan cost. By comparing offers from at least two to three lenders, you increase your chances of finding the best deal.
• Look for Experience and Expertise: Not all mortgage lenders are approved to work with FHA loans, so it’s important to find an FHA-approved lender with experience. FHA loans have unique requirements, and an experienced lender will understand the specific documentation required, the steps involved, and how to avoid common pitfalls.
• Choose a Lender Who is Informative and Supportive: A great lender should do more than just offer good rates. Look for a responsive lender who takes the time to explain your options and answer any questions you have. The best lenders keep you informed every step of the way, helping you feel confident and supported throughout the process.

2. Get Pre-approved

The first official step in the FHA loan process is getting preapproved. This step gives you a clearer understanding of how much you can afford and allows you to confidently start home shopping.

During pre-approval, the lender reviews your financial history, credit score, and income to determine your eligibility for an FHA loan. To get pre-approved, you need to provide the following documents:

• W-2 forms: Your wage and tax statements for the last two years.
• Recent pay stubs: Lenders usually require 1 month of pay stubs minimum. These should show your current earnings and employment.
• Bank statements: Proof of assets and savings that will be used for the down payment and closing costs.
• Tax returns: May be required but varies by borrower.

It’s important to note that your lender may request additional documentation or clarification on your financial information. So, come to the table with a flexible mindset that you may need to provide further details or make adjustments based on your financial profile.

Once pre-approved, you’ll receive a letter from the lender confirming your loan amount, which helps you make offers on homes.

3. FHA Appraisal and Inspection

After you find the right home and your offer is accepted, the next step is the FHA appraisal and home inspection.

• Appraisal: An FHA-approved appraiser evaluates the home to determine its market value and ensure it meets the FHA's safety and livability standards. If the home doesn’t meet these requirements, the seller may need to make repairs before the loan can proceed.
  
• Inspection: While not required by the FHA, it’s recommended that you hire a professional inspector to thoroughly evaluate the property. The inspector checks for issues, such as structural problems, plumbing or electrical issues, and potential safety hazards. An inspection protects you from purchasing a home with hidden problems.

4. Underwriting

In the underwriting phase, your lender closely reviews your financials, including your credit history, income, and assets. The underwriter's job is to assess risk and ensure you meet all FHA loan requirements. They also verify the information you’ve provided and confirm that the property appraises for the loan amount.

Underwriting can take several days to a couple of weeks, depending on how quickly your lender can verify all required documents. During this time, you may be asked for additional information or clarification.

5. Loan Closing

Once your loan is approved, you move on to the closing process. At closing, you sign the final loan documents and officially take ownership of your new home. Some key documents you’ll encounter include:

• Promissory Note: This is the legal document in which you agree to repay your loan.
• Closing Disclosure: A summary of your loan terms, including the total cost of the loan.
• Deed of Trust: A legal document that secures the loan with the home as collateral.

At closing, you’ll also pay closing costs and your down payment either by wire transfer or cashier’s check. If you or your agent have negotiated for the seller to cover any closing costs, that will be reflected in the closing disclosure.

After signing the paperwork, you receive the keys to your new home.

6. Post Closing

After closing, the final phase is loan servicing. Your lender or loan servicer handles the management of your loan, including collecting payments and maintaining records. It’s important to keep track of payment deadlines and set up automatic payments, if possible, to ensure you don’t miss a payment.

In addition, post-closing reminders might include keeping records of your mortgage statements, property taxes, and homeowners’ insurance up to date. We recommend that you always contact your lender if any issues arise with your payments or mortgage.

Get Started on Your FHA Loan Pre-Approval Today

Now that you’re familiar with the FHA loan process, the next step is to get pre-approved with a trusted lender.

Whether you have questions about eligibility or are ready to start the process, our Neighbors Bank team is here to help. Contact a Neighbors Bank loan specialist to start your pre-approval and take the first step toward homeownership.