Recently in this space, we went over some of the key advantages of utilizing the FHA loan program for many homebuyers, particularly first-time buyers. With lower credit and down payment requirements plus benefits in areas like closing costs and several others, there are a number of reasons why many buyers utilize this program – and also some key considerations to keep in mind if you’ve decided to move forward.
At Altius Mortgage and our partners with Mortgage Ogden, we’re happy to assist with a wide range of mortgage programs, including many meant largely for first-time homebuyers – and the FHA program is one of the most common we utilize for such clients. What’s required when applying for an FHA loan, and what should you be thinking about as you move through this process? Here are some basics to keep in mind.
Standard Requirements for FHA Loan Qualification
Here are some of the typical requirements that all applicants for FHA loans will typically have to meet:
- Valid residence and age: First and foremost, anyone applying for this loan must be a valid resident of the United States. They must have a social security number and must also be of legal age to qualify.
- Bank statements for past 30 days: Like many other loan applications, the FHA loan requires that potential borrowers provide bank statements from the past 30 days.
- Proof of income: This includes documentation such as pay stubs or W-2 forms. The lender needs to see evidence of your employment history and current wages in order to confirm your ability to repay the loan.
- Minimum credit score: FHA requirements dictate that potential borrowers possess a minimum credit score of 580, although most lenders will require higher scores.
- Credit report & history: As part of the loan application process, your lender will need to request and review your full credit history in order to assess whether you meet their criteria. Additionally, they may look into the type of loans you’ve taken in the past and how you’ve done at repaying them.
Possible Additional Requirements
There could also be a few other requirements that are asked of you for FHA loan qualification – some based on specific circumstances, others based on which lender you’re dealing with. These include:
- Veteran’s certificate of eligibility: For veterans, a certificate of eligibility is required to prove their service in the armed forces.
- Gift letter/funding source: Some FHA loans may require a gift letter or other funding source as evidence that you can cover your down payment and closing costs.
- Name and location of employers: Some lenders will require applicants to provide contact information for their current and past employers over the last two years.
- Personal tax returns: In other cases, borrowers may be asked to provide copies of their prior year’s personal tax returns in order to prove their income.
- Value of personal property: Especially in cases where a borrower has a particularly high amount of personal property, lenders may ask for an inventory and appraisal.
- Business sheet for self-employed borrowers: If you are applying for the loan as a self-employed individual, you will likely be asked to provide financial information regarding your business.
Key Variables to Consider
As a borrower looking into an FHA loan, here are some of the major elements that are worth considering even before you apply:
- Property type: For FHA loans, both single-family homes and multi-family homes can qualify – but keep in mind that there could be limits on the size and number of units. And on the flip side, this program cannot be utilized for investment properties.
- Mortgage insurance: FHA loans will come with both upfront mortgage insurance premiums and annual mortgage insurance premiums.
- Down payment: Generally speaking, borrowers should plan to front a 3.5% down payment when applying for an FHA loan – although some lenders may have their own requirements in place above and beyond that baseline number.
- Debt-to-income ratio: While FHA loans have less strict DTI requirements than conventional loans, it’s important to stay mindful of how much debt you already have in relation to your income.
Steps to Follow
Here are some of the simple steps to follow if you’re looking to obtain an FHA loan:
- Find a great lender: The FHA does not directly offer loans, so you’ll need to work with an FHA-approved lender in order to move forward. As you’re shopping around for lenders, it’s smart to compare multiple options in terms of their interest rates, fees and other important details.
- Gather the necessary paperwork: As mentioned above, you’ll need to put together certain documentation that reflects your credit history, income level and more – so having all of the relevant info on hand will be key before moving forward.
- Submit your loan application: After you’ve put together your paperwork, you’re ready to submit a formal FHA loan application to the lender. At this point, they will be able to assess whether you meet their criteria and move forward with the loan process.
- Be available to provide further information: Once you’ve submitted the application, you should be prepared to provide additional information or paperwork if it’s needed by the lender. This information may include everything from recent pay stubs to current bank statements and more.
As you can see, there are a number of important steps to keep in mind when applying for an FHA loan and it’s essential to do your research ahead of time. With the right preparation, you can make sure that you’re maximizing all of the potential benefits that this popular loan program has to offer.
For more on this, or to learn about any of our mortgage rates or quality home loan services, speak to our team at Altius Mortgage today.