How to Apply for an FHA Loan
FHA loans are widely available and represent over 25% of all mortgages in the United States. They allow for a small down payment of just 3.5% and some lenders will accept borrowers with very low credit scores.
How to Apply for an FHA Loan
FHA loans are available through most traditional lenders and you can apply for an FHA loan through your local bank, a mortgage broker, an online lender or a credit union. The application process will be similar for each lender.
What are FHA Loans?
FHA loans are mortgages that are insured by the FHA (Federal Housing Administration) which allows for borrowers to qualify with a small down payment and low credit scores. These insured government loans limit risk for the lenders which makes FHA loans attractive for lenders to offer as part of their menu of mortgage programs available to consumers.
How to Apply for an FHA Loan in 5 Steps
Applying for an FHA loan requires just a few easy steps which will be the same regardless of which lender you decide to use.
- Determine your budget and how much you can afford
- Secure rate quotes from multiple lenders
- Assemble copies of recent pay stubs, bank statements, and tax returns
- Complete the standard mortgage application form 1003
- Address any additional requirements from your lender
We recommend speaking with an FHA lender well before you begin shopping for a home. This will give you time to fix any credit issues or find the down payment money needed to close on your home loan.
Where to Apply for an FHA Loan
The lender options below all offer FHA loans to home buyers. However, they each have their benefits and you will need to decide which is best for you.
1. Local Bank – Virtually every local bank will offer FHA loans because there is little to no risk for them. Despite the limited risk, local banks often require higher credit scores than virtually every other lender. They also do not offer all of the FHA loan products such as the FHA 203k rehab loan or the FHA One Time Close construction loan.
It is good to check with the local bank where you may have your savings or checking account to see what they have to offer. However, it is strongly recommended that you get other rate quotes.
2. Mortgage Broker – Mortgage brokers work with a handful of direct or wholesale lenders and have the ability to shop for a better deal on your behalf. The typical broker will have 2 or 3 FHA lenders they are comfortable with and the broker will decide which lender to choose while balancing the rate they can offer you with the commission they will earn from the lender.
It is important to note that using a broker does not mean you are not getting the best deal possible. Going to a direct lender does not mean you are “cutting out the middle man” to get a better rate.
One of the challenges is the broker often does not have direct contact with the underwriting department. This makes it more difficult for them to push a loan through the approval process.
3. Credit Union – A credit union is a non-profit lender which may also allow you to do your basic banking with them. They offer mortgages at competitive rates but they may not accept lower credit scores.
Many credit unions require you to become a member which could add costs or even delay your mortgage application process. The application process may also be delayed by their lagging technology and inability to upload bank statements and other documents electronically.
4. Online Lender – Online lenders represent a huge portion of all new mortgages in the United States. Their primary focus is the mortgage business as opposed to local banks who are also looking to sell other products to you including their credit cards. Without the need for offices in every city, online are able to reduce expenses to be extremely competitive. They are also going to have the most up to date technology when it comes to the application process.
There are consumers who still have a fear of working with an online lender because they are sharing personal information online. Every lender has an NMLS listing that can be verified to help remove your concerns if that is the case for you.
If you are wondering where to apply for an FHA loan, let us help you with that decision. Based upon your personal situation and needs, we can place you with an FHA lender that can help. Just complete this request quote form and we will get back to you quickly.
Are All FHA Lenders the Same?
All FHA lenders are not the same because they all have their own credit score requirements and product offerings that will likely differ from, or will be more restrictive than what FHA guidelines permit.
Some lenders may tell you the credit score requirements for an FHA loan are 640 for example. This simply means that is the requirement for that particular lender.
The FHA has their traditional 203b purchase mortgage but they also have other products such as the 203k rehab loan, the one-time close construction loan and even an FHA loan for energy efficient homes. Many lenders do not offer these special FHA loan programs.
How to Qualify for an FHA Loan
The basic requirements for an FHA loan are as follows:
- Minimum FICO score requirement of 500 – down payment will vary
- Minimum down payment requirement of 3.5%
- Mortgage Insurance Premium (MIP) is required for every FHA loan
- Maximum debt to income ratio of 43%
- The home must be the primary residence
- The borrower must have a 2-year work history with steady income
- Home must pass FHA inspection
If you meet some or all of these basic requirements, then you may be a perfect candidate for an FHA loan. Read our article on the FHA loan guidelines to learn more.