The Federal Housing Administration (FHA)’s mortgage insurance program, which dates back to the New Deal, helps moderate-income Americans buy houses. It offers a low down payment and relaxed qualifying criteria that allow more people to qualify for a loan and to receive competitive interest rates. While the FHA program can be less demanding than conventional mortgages, qualifying for one isn’t as simple as just filling out a short application. You still need to complete a relatively lengthy approval process.
Step 1 – Prepare Your Paperwork
Compile the information you’ll need to submit your application. Lenders generally want to see pay stubs from your current job, statements from your bank and savings accounts, W-2 forms and tax returns. Even if you aren’t ready to apply quite yet, it’s good to get in the habit of saving your statements and pay stubs so that you’ll have some historical ones when you do need them.
Step 2 – Find a Qualified Lender
Choose a lender that has experience with FHA loans and, if you’re a first-time home buyer, with first-timers as well. To narrow down the field, ask people you trust for recommendations. Friends, family, financial advisors and your real estate agent, if you have one, should all be good sources.
Step 3 – Meet Your Lender Before You House Hunt
Bring the supporting documentation listed in step 1 to the lender and fill out the application paperwork with his or her help. It’s good home-buying strategy to go through a pre-approval process where the lender does most of the work for your loan before you select a house so that you know what you can buy and so that you can let sellers know that you’ve already been pre-approved. This makes your offer more credible and more likely to be considered.
Step 4 – Check Your Credit
While lending standards vary, as of April 2013, the FHA usually requires you to have a minimum credit score of 620 to qualify for automatic underwriting, although you may be able to get an FHA loan with an even lower score. Check your own credit report to make sure there are no surprises when your lender pulls your report. Lenders use a variety of methods to check your credit, but regardless of how they pull your report, you can do yourself a real favor by reviewing your own credit score to get an idea of where you stand.
Step 5 – Address Weaknesses in Your Application
Work with your lender to handle any credit issues that arise and be disciplined about establishing good credit habits. If your score is below the FHA’s threshold or if you have any serious credit issues like open collections, your lender can help you to do any necessary work to potentially improve your credit-worthiness. Lenders have access to tools that can simulate the impact of any changes you make, as well as the ability to ensure that any positive changes you make are reflected in your report and your score. You may also need to contact creditors or the credit bureaus to have erroneous information taken off your report.
Step 6 – Follow Through
Provide any additional supporting documentation that your lender requests. Usually, after this point, you will get a preapproval or, if the final lender reviewed the file, a commitment letter that you can use as you shop for a home. At this point, you’re approved for your loan as long as your home meets the FHA’s standards and nothing changes in your situation.
Step 7 – Get An Appraisal
One of the final steps in the approval process is ordering an appraisal of the house that you want to purchase. After the lender reviews the appraisal, it will complete its final underwriting and should issue the documents that you need to sign to close the loan.
About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2013 ConsumerInfo.com, Inc. All rights reserved.