What is an FHA home loan?
FHA stands for Federal Home Administration. An FHA loan is backed by the U.S. Department of Housing and Urban Development. It has more flexible requirements than the other lenders. Because of its flexibility, an FHA loan requires insurance for its mortgage. The borrowers get the mortgage insurance refunded to them by FHA once they pay their loans back. So, generally a borrower has to pay more money than he had to pay to other lenders per month as installment. But, at the end of all the procedures, the borrower gets more benefits from an FHA than the other conventional lenders. FHA provides loans on various causes, and FHA Home loan is one of them.
As the Federal Housing Administration shall become the insurer of the loan applicant’s mortgage, it’s team will analyze different factors related to the loan applicant in order to confirm affordability of the applicant.
- Mortgage insurance: FHA home loans require mortgage insurance so that they can save lenders from losses if any borrower defaults on home mortgage.
- Credit Scores: Credit score play a major role for an applicant to get a loan. A loan applicant may qualify for an FHA home loan if he has a credit score of 580 or above. If an applicant had faced problems with credit score in the past, then he is suggested to participate in a credit counseling program in order to avoid any kind of denial of his loan application.
- Paperwork submission: Paperwork can be submitted in both ways: manually and electronically. The FHA requires a wide range of information of an applicant through the FHA loan application. Required additional paperwork are such as, DD Form 214, paperwork related to mortgage etc. The applicant should also be careful to explain his job stability and financial condition in order to make a good impact to the lender to qualify for the loan.
- Down payment: An applicant needs to have a good credit score to get opportunity of down payment up to 3.5%. Generally adjustable rate mortgage and big loans are restricted for client with scores between 580-619. Applicants having credit scores more than 619 get more beneficial offer with their down payments.
The approval process is tricky and applicants may face problems if they are not well prepared. A short overview of the approval process is provided below:
- Before approval: The lender analyzes the applicant’s financial condition to determine if the applicant suits for the loan and how much loan he should get.
- Application submission: The applicant will be asked to submit paperwork along with a Uniform Residential Loan Application form. A lot of details will be asked by the lender in this section.
- Property Analysis: The lender also requires to know the true market value of the targeted property the applicant wants to buy. In this case the lender will take help of an appraiser to determine the true market value of that property.
- Review: In this case the underwriter of the lender will analyze the submitted paperwork, financial stability, credit score and some other factors related to the applicant to make sure the process is good. The applicant has to submit a Letter of Explanation(LOE) and take necessary steps if the underwriter detects any problem in this process.
- Approval: This the last part of approval process. After a tight review process by the underwriter, the selected applicant for the FHA home loan needs to sign necessary paperwork and clear all required fees to receive the loan.
FHA provides a wide range home loans to the borrowers than the other conventional lenders. So, an applicant needs pick the offer that suits him most in order to make the whole process swift for him.