April 29, 2024
New house hunters looking for a home to buy with an FHA mortgage soon learn about the phases in the process of finding, making an offer, and moving into a new home.
There is an initial phase for planning and saving and a house-hunting phase, where you start looking for a house to make an offer on. We examine some key parts of the process below.
Pre-Approval / Pre-Qualifying For An FHA Home Loan
When you look at houses with an eye on making an offer, it helps to get prequalified for a loan to learn how much you might be approved for when you make the offer.
Prequalification is a process resulting in a rough estimate of how much you could qualify to borrow. It is not the same as pre-approval, which gives you more firm numbers for the loan amount and your down payment.
Take both steps. Prequalification tells the seller you intend to buy a home and not just try the house on for future consideration.
If The Appraisal Is Higher The Price
It would be easy to assume a borrower might be required to purchase the home even if the asking price is higher than the appraisal. If you have already set aside earnest money, don’t panic.
With FHA mortgages, you are allowed to walk away from the home loan when a house appraises lower than the asking price. You will not earnest money if your circumstances meet the FHA loan rules in this area.
The Lender’s Instructions Are The Key To Closing Cost Payments
Some borrowers go into the home loan process not understanding (at first) that the lender must verify sources of FHA loan down payment money.
Also, closing costs payments are scrutinized to ensure an interested third party doesn’t provide what FHA loan rules describe as an “inducement to purchase.”
That is, the seller (or anyone else with a stake in the transaction’s outcome) pays a portion of your closing costs above the statutory 6%.
Anything exceeding the 6% limitation on FHA loans has a requirement. The FHA lender must reduce the dollar amount of the loan by the overage. It’s a dollar-for-dollar reduction.
Some homeowners aren’t aware (at first) that on the closing day, you won’t be permitted, in typical cases, to simply write a personal check for the down payment. Instead, you must follow lender instructions for this payment to the letter.
Anything Can Happen Between Loan Approval And Closing Day
Did a storm or other problems affect the home? If the property you committed to buy is damaged, you and the lender must review the situation, determine how bad the damage is, and whether the sale should proceed.
Don’t assume you’re required to complete the transaction. It’s also a bad idea to assume the opposite is true. Talk to your lender.
Before Scheduling The Moving Van
Why do mortgage blogs insist it’s a bad idea to have your movers do their work on the same day as your closing day? Any number of factors may conspire to change that date.
For example, the seller might not be able to vacate the property on that specific day just yet and it may be necessary to coordinate your move with the owner.
Don’t assume your closing day should be the same day you schedule the moving van. Unanticipated delays could make a later move-in date a necessity.
Your participating FHA lender may have a schedule conflict, the seller could get sick, or so-called “acts of God” may prevent your closing day from happening as scheduled.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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