April 3, 2023
When you are preparing for an FHA loan, or an FHA refinance loan, what can you do to get ready? How long should it take you to prepare? These are two important questions to answer long before you complete an application for your loan.
Generally, it’s best to start saving and budgeting as early as possible before your loan. FHA-required appraisals cost money, as do compliance inspections, flood insurance, and other expenses.
At a minimum, borrowers should begin pulling their credit reports and insuring all payments on all financial obligations are made on time, without fail at least 12 months in advance.
Depending on the type of home loan, you may need to get credit or home buyer’s counseling. For FHA Home Equity Conversion Mortgages or HECM loans, counseling is required for loan approval.
In other cases, it may be voluntary, but any new house hunter can benefit from pre-purchase counseling to help prepare, avoid scams, and make smart choices regarding an FHA home loan.
When you are in the planning stages for an FHA home loan, it’s best to avoid taking out new lines of credit and reduce or eliminate ones that are not necessary.
It’s a bad idea to get into a new car payment, for example, when you’re one year out from an FHA loan application. It’s also a bad idea to apply for new credit cards, especially those with high credit limits. Could the lender take into consideration your potential debt as well as your existing debt?
Preparing for an FHA refinance loan sometimes means anticipating a new appraisal. Do you know what property values are like in your neighborhood now as opposed to one year ago? Five years ago? Is your housing market on the move, or is it in decline?
That’s an important factor for cash-out refinance loans–equity in your home as well as property values might affect the amount of your loan depending on circumstances.
Finally, the timing of your FHA loan application could help you depending on your personal finances. For example, if a student loan is deferred at the time of loan application, this could help improve your debt-to-income ratio.
The same goes for extra pay, thanks to a pending promotion or a change in your debt picture if a current financial obligation is to be paid off soon. Keep the timing of these things in mind when choosing when to apply for your loan.
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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