There are many ways that you can fill out the FHA loan application. Some people choose to do it in person at their lender’s office while others want to do it from the comfort of their own home online. No matter the method you choose, the important thing is that you are prepared with all of the information necessary to get a pre-qualification. Without that pre-qualification, you will not know how much of a payment you can afford or if you are able to refinance if that is your goal. Before you start filling out the application, have these items ready.
Know your Goal
The first thing you need to do is know the purpose of the FHA loan. Are you looking to purchase a home or refinance an existing home? The rules are different for each purpose, so make sure you fill out the application or what you want to do. If you are purchasing a home, that is really the only question you need to answer in this regard. If you are refinancing, however, you need to know which of the following you want to do:
- No cash out (rate and term refinance)
- Streamline refinance (very little documentation needed)
- Cash out refinance (take cash out of the equity of your home)
Know your Credit Score
Most pre-qualification programs will pull your credit for you as this is a major component of whether or not you can get qualified. You have the right to obtain your credit report from each of the three credit bureaus one time per year for yourself, so it pays to get those reports to know what you are up against. If you have judgments, collections, or late payments reporting, now is the time to correct them and bring everything current so that you can get your credit score back up. If you have negative financial events reporting on your credit report, be ready to have letters of explanation regarding the events so that the lender can make an informed decision on your case.
Know your Housing Payment History
The lender is going to inquire about your housing payment history. Do you make your payments on time? This is in regards to rental payments or mortgage payments. The lender can request a verification of rent form from your landlord or will require you to provide the last 12 months’ worth of canceled checks to prove that you made your payments on time. If you do not have 12 straight months that your payments were made on time, you might have a hard time getting approved for an FHA loan unless they provide you with a manual underwrite because you have other compensating factors such as a very low debt ratio and plenty of reserves. It pays to get your housing payment history in order before filling out an FHA loan application.
Know the Price or Value of the Home
The purchase price of the home is the most important piece of information when you are filling out an FHA loan application. If you are refinancing, you should provide the value of the home or the last value that you knew of if you do not have a recent appraisal. This will help the lender determine the LTV of your loan and the loan amount that you will need to see if it will fit within your budget after looking at the other factors of your loan application. If you are purchasing a home, you will also need to note the amount of money you plan to put down. The minimum for an FHA loan for a borrower with a credit score over 580 is 3.5 percent of the sales price. If your score is lower than 580 and above 500, you will have to put down 10 percent of the sales price.
Know the Type of Home
The FHA provides loans on a variety of different types of homes including single family, condos, townhomes, and PUDs. They also provide loans on multiple unit properties, such as 2, 3, and 4-unit properties as long as you occupy one of the units as your primary residence. The type of property you plan to purchase or refinance plays a role in whether or not you get approved as it will help determine the value and the risk level of the home. Make sure you answer this question honestly on the FHA loan application in order to get an accurate approval.
Know your Income Type
Your income plays an important role in the approval process as well. If you are a straight salaried employee, your income is pretty easy to determine. They will use your last 12 months’ worth of income and divide it evenly. If you work on commission or bonuses or you have seasonal/part-time work, you might not know exactly what figure the lender will use for your qualifying income as they have to weigh all of the costs into equation as well as average the income out over the course of the year in order to account for all of the highs and lows that occur with non-salary income. If you are self-employed, you can ensure that you will have to provide your tax returns, both personal and business, in order to get qualified.
The FHA loan application is similar to any other loan application because you need to provide all aspects of your personal and business financial life in order for the bank to make an informed decision. The more information that you provide, the more likely it is that you will receive a reputable answer to your request for getting an FHA loan. Remember that a pre-approval is not a guarantee to get the FHA loan; it is the first step before underwriting. It is during that underwriting process that lenders get a full look at your financial picture and can determine what you are eligible to receive without putting the bank at risk for default.