Are you wondering if an FHA loan could be the financial tool that paves your path to homeownership? To get started, you’ll need to learn how to apply for an FHA loan.
How to Apply for an FHA Loan
As The Mortgage Reports explains, FHA loans aren’t issued by the Federal Housing Authority (FHA), but they are insured by the agency. This government backing allows the private lenders who do issue the loans to offer borrowers low interest rates, low down payment requirements, and relaxed credit standards. That’s a combination that makes these loans popular with first-time and lower-income homebuyers, but that doesn’t mean that other borrowers shouldn’t take a look at them. Anyone is welcome to apply for this form of financing. In fact, learning how to apply for an FHA loan could come in handy for all types of borrowers.
Qualifying for an FHA Loan
Anyone can apply for an FHA loan, but borrowers will need to meet certain qualifications to be approved. According to Money Under 30, borrowers seeking an FHA loan will need to meet the following requirements:
- Have a steady, verifiable income. Lenders like to see that you have at least a 2-year employment history and can provide evidence of a steady income via pay stubs or tax returns.
- Have the financial means to afford the mortgage payment. Generally, your new mortgage payment cannot be more than 31 percent of your monthly income. Meanwhile, your mortgage payment and other debts cannot total more than 43 percent of your monthly income (with the approval of an automated underwriting system, also known as an AUS, you may be eligible for higher).
- Have a credit score of at least 640. The FHA requires a FICO credit score of at least 580. PrimeLending requires a score of 640.
- Have a down payment of at least 3.5 percent. While a larger down payment is welcome, having at least 3.5 percent on hand is essential.
- Choose a home that falls within FHA loan limits. The federal government sets limits on how much you can borrow with an FHA loan. The limits vary by state and tend to be generous enough to meet the needs of most homebuyers.
- Choose the terms of your FHA loan. With FHA loans, you have choices. Borrowers can opt for either a fixed-rate or adjustable-rate loan. Various loan terms are also available. While the 30-year loan is the most popular, loans with terms of 15, 20, and 25 years can also be found.
- Prepare for the mandatory mortgage insurance. If you’re using an FHA loan, you’ll be paying private mortgage insurance. It’s mandatory for this form of financing. In fact, you’ll pay it twice. Borrowers will pay it upfront at the closing table. They’ll also pay a monthly premium that’s added to their mortgage payment.
Applying for an FHA Loan
What is involved in applying for an FHA loan? As Zillow reports, only FHA-approved private lenders can issue FHA loans. That makes finding a selection of lenders who offer these loans the first step in applying for one. That’s fairly easy to do because many lenders list FHA loans among the offerings. Having your choice of lenders is an advantage because you’ll be able to shop around a bit. Look for a lender who you feel comfortable working with who can provide great service, helpful guidance, and competitive terms for your new home loan.
Do you have more questions about how to apply for an FHA loan? Are you curious about whether a fixed-rate loan or an adjustable-rate loan would better serve your needs? Would you like to explore how changing a home loan’s term from 30 years to 15 would change things? Turn to the loan experts at PrimeLending KC. We’re happy to put our expertise to work for you so that you can feel good about the financial decisions that you’re making as you reach for your housing goals. Contact us today to get started.