Federal Housing Administration or FHA mortgages are an advantageous product that helps many eligible homebuyers in tight financial situations to achieve homeownership.
Thankfully, there are many FHA-approved lenders, such as The Federal Savings Bank, that are experienced in helping new buyers through the loan process.
A home mortgage is a long-term financial commitment; it’s important to have a thorough understanding of the loan process and what you’re committing to. That all starts with finding the right lender.
In this article, we’ll explain exactly what to expect with an FHA mortgage, the benefits, and guide you through the loan process. We’ll help you prepare to apply so that you can feel confident to take on such a major milestone—owning your own home.
Make your mortgage affordable with an FHA loan
FHA loans are affordable mortgages backed by the Federal Housing Administration, under the United States Department of Housing and Urban Development (HUD), which allows lenders to approve more borrowers than with conventional loans.
FHA loans were created for eligible buyers to purchase a home or refinance their current home mortgage with flexible qualifications, more favorable mortgage rates, loan terms, and a down payment as low as 3.5%.
Typically, conventional mortgages require a much higher down payment, sometimes at least 20% of your total home mortgage. A 3.5% down payment allows you to save money or use it elsewhere.
If you’re considering purchasing a home for $300,000, for example, a 20% down payment would be about $60,000. A 3.5% down payment would cost around $10,500.
Not only do you save money with an FHA loan but time as well. Higher down payments require large savings amounts that could take longer than desired to save before a home purchase.
Another great benefit is that they offer flexible credit score requirements. However, if you have a lower credit score you may have to make a higher down payment.
It’s important to note that your lender may have additional requirements for your FHA mortgage, so it’s crucial to meet with a lender before applying to understand your approval and the down payment amount required.
How to prepare for the FHA loan process
You can prepare to apply for an FHA mortgage in many ways, and it truly depends on your current financial situation and home ownership goals. However, there are simple steps you can take to get the best loan offer.
Budget
Use a home mortgage calculator to estimate how much you may have to put down for your home to be affordable and determine a budget to help you get there.
Find the right lender
Such an overwhelming task as applying for homeownership requires the right dedication and guidance from an experienced FHA lender, such as The Federal Savings Bank. Also, consider referrals from friends and family and research-approved lenders near you.
Above all, make sure the lender is responsive, knowledgeable, and committed to helping you achieve your goal.
Gather all documentation before you apply
Gather as much financial documentation as you can before you apply so there isn’t any delay in your approval.
Eliminate any outstanding debt
Pay off your biggest debts to lower your debt-to-income (DTI) ratio. While it’s not always a determining factor for FHA mortgage approval, you may be offered better rates and terms with a lower DTI.
Get pre-approved
Apply for pre-approval from your lender, so you have an estimated amount to shop for homes and better understand what you can afford.
The application process for an FHA mortgage
The process of applying for an FHA mortgage loan to purchase your home is straightforward.
After meeting with a lender, you’ll need to prepare all the required documentation.
This can include, but is not limited to:
- Recent tax returns and W2s
- Employment information and history
- Proof of identification
- Bank statements
- Proof of income
- List of assets and total debt
The underwriting process will begin once you’ve gathered all documentation and your lender officially approves your application for the loan.
The underwriter will thoroughly review your information and documentation to see if you meet not only the lender’s requirements but the FHA requirements as well.
Ideally, the underwriter will review your loan application and documentation without any issues but sometimes may request additional documentation to complete their checklist of approvals.
Pre-approval
One way to determine your approval chances before applying for the mortgage is to get pre-approved.
A pre-approval is not a requirement and does not guarantee official approval, but it outlines how much you may qualify to borrow and provides a sense of security before you apply for a home mortgage.
On top of that, a pre-approval can help make your offer stand out to sellers as it also shows that you’re a credible buyer with secured financing.
Appraisal and inspection
Once you find a home to purchase, an appraisal is typically required for the underwriting process to determine the home’s property value. An inspection is also required to ensure the home meets FHA guidelines. Both will be necessary for FHA mortgages and can come with minor fees.
Closing
Once the underwriter confirms that you and your property meet all requirements, you’ll close on the loan—the last step of the process.
Closing consists of signing paperwork and paying closing costs and fees, such as legal fees, home inspection fees, processing fees, and more. You can typically expect to pay fees amounting to a small percentage of your loan amount during closing.
Your lender will provide you with a closing disclosure which will outline the details of your loan as well as what the closing costs look like so that you can prepare yourself financially.
Apply for your FHA home loan with The Federal Savings Bank
Choosing the right FHA lender is imperative as you move forward in your home-buying or refinancing process.
At The Federal Savings Bank, we offer FHA mortgages for purchasing and refinancing, on top of a wide array of other loan products that help make affording a home achievable, such as USDA and VA loans.
We’re veteran-owned and pride ourselves on servicing our communities. We know that you have questions and we’ll help you find the answers.
Get started on your home loan today.
Subject to credit approval. Terms and conditions may apply. Subject to VA eligibility requirements. Property insurance is required on all loans secured by property.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.
