July 5, 2012
If you’re a first time home buyer interested in getting an FHA loan, there are several options you can choose from when you’re ready to commit to buying a home.
Home loan experts recommend preparing for any new home purchase at least a year in advance so you have time to save money for the costs of the loan you need to pay up front, examine your credit score, and reduce any unnecessary open lines of credit.
Once you’re ready to start house hunting, you have options that include getting pre-qualified for an FHA loan amount, or finding a suitable home and applying for the loan once you’ve made your choice.
FHA loans work because participating lenders offer mortgage loans to qualified borrowers. The FHA itself does not lend the money–it guarantees the mortgage through the FHA loan insurance program, making it more attractive for the lender to issue the mortgage.
According to the FHA official site, “To provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.”
What are the eligibility requirements for an FHA home loan? According to FHA.gov:
* The borrower must meet standard FHA credit qualifications.
* The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
* Eligible properties are one-to-four unit structures.
The borrower negotiates with the seller, and applies for the loan with the lender of his or her choice. The lender examines the application data, makes a determination of the borrower’s creditworthiness, and approves the loan on that basis. It should be noted that FHA loan approval is also conditional on the property passing the FHA appraisal.
Any property that meets or can be repaired/corrected to meet FHA minimum property requirements may be approved for an FHA home loan. Some properties cannot be corrected for one reason or another–they are situated near hazards, are located within high voltage transmission easements, etc. Such circumstances are reviewed on a case-by-case basis.
When an FHA mortgage loan is approved, a closing date is set, the amount of money to be paid up front is determined, and the deal is closed. While this is a very simplified version of the FHA home loan process, it does serve to give first time buyers an idea of what to expect. You can learn more about the FHA loan process at the FHA Resource Center at FHA.gov.
Do you have questions about FHA home loans? Ask us in the comments section.
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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