Step 1: Preparation

Prior to applying for an FHA loan, there are certain things every individual should do to make sure the process goes smoothly. Since approval for an FHA loan is based primarily on the documentation you can provide, making sure you have all the necessary documents available is very important. Here is a list of the documents you should locate before beginning the FHA loan process:

1. Tax documents: You’ll need your last two tax returns, W-2’s, and schedules if you’re not self-employed. If you are self-employed, you’ll need three years worth of tax returns as well as your YTD profit & loss statements.

2. Banking documents: You’ll need your last three complete bank statements for all of your bank accounts as well as any statements from retirement funds, any 40 1 k’s, mutual funds, stocks, etc.

3. Personal documents: You’ll need your social security card and driver ’s license as well as any of the following if you have them: green card, work permit, divorce papers or alimony papers.

The other important documentation you’ll need has to do with your credit. While the FHA doesn’t have strict credit requirements and is known for financing people with a poor credit history, the FHA will examine your credit to determine whether or not you’ll qualify for a loan. To do this, they’ll request you give them your most recent bill statements, your last landlord’s contact information, any bankruptcy papers, and any other papers related to your credit. HOW TO OBTAIN AN FHA MORTGAGE LOAN

Additionally, the FHA will check your credit report. You are entitled to one free credit report every year from the “big three” credit reporting agencies and you should make use of that fact. Head to www.annualcreditreport.com to get copies of your credit report and see it before the FHA does. Note: if you want to know your credit score (a measure of your credit expressed as a three digit number – higher is better) you’ll have to pay approximately $15.00 for it to each of the three companies, Equifax, Experian, and TransUnion.

If after examining your credit report you notice any errors (nearly three quarters of all credit reports contain at least one error, according to the Government Accounting Office), you can contact the credit agency and work to remove the mistake. Sometimes, documents that describe how a family illness, injury, or loss of job contributed to credit problems can be attached to your credit report. Do this before the FHA obtains your credit report.

Step 2: Searching for Lenders

There are a few places you can begin your search for lenders. Locally, the obvious choice is to check the phone book. If you can’t find any listings related specifically to FHA loans, call another bank or lending institution you are familiar with and trust, and ask them if they can recommend anyone for an FHA loan. These days, however, more and more borrowers are locating their lenders on the internet. Searching for terms such as “FHA loan” in a reliable search engine such as Google or Yahoo! will produce thousands of results, so it’s important to find a lender that you can trust. Furthermore, not all lenders can do business in every state, so be sure to find out if your preferred lender can help you finance your home in your state.

Step 3: Contacting the Lenders

When contacting a lender, ask them if they originate FHA loans. If they do, be sure to ask about their interest rates and other fees that you’d be required to pay. Ask them about their loan terms and credit requirements. Ask them if they will do “pre-approvals,” which are necessary when you begin house-hunting. Keep in mind that you do not have to take a loan from a lending institution just because they pre-approved you. Don’t go through a pre-approval process with a lender that you don’t like, however. If their rates are too high or their terms too strict you should just move on to another lender.

Keep track of the various interest rates and terms that you are quoted by the lenders. This is important for the next step.

Step 4: Shopping Around for Lenders

This step is extremely important. Every lender is different, so be sure to shop around for multiple lenders before making any decisions. Some banks may offer you extremely low interest rates and great contract terms, other might not. Every situation is different when it comes to mortgages, so keep track of the rates you are quoted. Ask around if other people have done business with the lenders you are considering and see what they thought. Keep in mind that lending institutions compete over borrowers because every mortgage that they close means more money for them. Be wary of any lender that wants you to commit to a contract immediately. Furthermore, if a deal sounds too good to be true, it probably is.

Step 5: Choosing a Lender and House-Hunting

Once you’ve found a trustworthy lender with acceptable interest rates and good mortgage terms, the next thing you need to do is get pre-approved. The lender will ask you for credit information and other details of the financial aspects of your life and the pre-approval process can take anywhere from an hour to a month. How long your pre-approval takes is largely based on how complex your financial situation is.

Usually, a realtor will not let you sign a contract to buy a house until you’ve been pre-approved. This is why it’s important to get pre-approved before house-hunting. Oftentimes, it’s not possible to do it any other way. Additionally, if you’ve been pre-approved prior to house-hunting, then the real estate agent will know your price limit when looking for homes.

 Step 6: Completing the Loan Application

At this point, you should be pre-approved by a trustworthy lender with reasonable rates, have a house picked out, and have signed with a realtor for that house. Now you’ve got to actually complete the loan application for the lender and by proxy the FHA. You’ll probably have needed the documents listed in Step 1 for the pre-approval process, but you might also need them now for the FHA to approve you and thus complete the loan application. You may need to pay the lender certain fees when completing the loan application. These fees are different for every lender.

At this point you’ll probably also need to pay the down payment and any mortgage insurance. With an FHA loan, the down payment is at least 3% of the home’s purchase price, though it may be higher as well. Make sure you have this money (whether it be yours or a gift) ready at this point.

Because you will be putting down as little as 3 to 5 percent for the down payment, you are required to pay mortgage insurance to cover the risk incurred by the lender. An up-front mortgage insurance premium is required and can be financed. The monthly mortgage insurance payments must be paid each month with the mortgage payment

Contact a FHA Specialist Now!.