Rumor has it the Federal Housing Administration (FHA) loan qualification process can take longer than a conventional loan. Is this true?
There are many variables involved in the FHA loan qualification process that can affect the timing. A Homefinity loan officer can guide you every step of the way to ensure things move at a pace that works for you.
Let’s dig into what pieces are involved in the FHA process, and how you can be prepared to help keep things running smoothly.
Who qualifies for FHA loans?
FHA loans are for borrowers with low-to-moderate income. These mortgages are insured by the Federal Housing Administration and issued by an FHA-approved lender, such as Homefinity.
FHA loans allow borrowers to have lower credit scores and provide a lower minimum down payment than conventional loans. They also provide no-closing-cost options and allow gift down payments. As a result, they are popular with first-time homebuyers.
How does an FHA loan differ from a conventional loan?
A conventional loan, on the other hand, is not offered through any government entity. These are available through private lenders such as banks, credit unions, and mortgage companies.
But, many conventional loans are guaranteed by two government-sponsored enterprises: the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
Conventional loans are the most common loan for homebuyers. The down payment can be as low as 3%, and you have the option to not pay closing costs out of pocket. You can choose a fixed or adjustable rate, and there are options for 15- or 30-year terms.
Conventional loan interest rates can be higher than FHA loans. This is because government-backed FHA loans are less of a risk to lenders.
What is the FHA loan qualification process?
Proof of payments
Qualification requirements are always changing, but typically FHA loans can be more forgiving about credit scores. In addition to using your credit report, your mortgage loan officer will look at your work history, utility payments, and rent payments for at least the past two years.
FHA loans also have down payment criteria. For lower credit scores, your down payment will need to be higher. If your credit score is higher, you can have a lower down payment that might be closer to the lowest conventional loan percentage.
For any type of mortgage, including FHA loans, you cannot be delinquent on federal student loans or income taxes, you must be at least two years removed from experiencing a bankruptcy event, and you must be at least three years removed from any mortgage foreclosures.
The lower your credit score and down payment, the higher the interest rate will be on your mortgage. Your mortgage loan officer can advise you on how to get your credit where you need it to be, even if you have gone through a bankruptcy or foreclosure.
With an FHA loan, you must pay two types of mortgage insurance premiums (MIP): an upfront MIP and an annual MIP, which is charged monthly. You can roll the MIP into the loan, or you can pay it at the time of closing.
The Federal Housing Administration’s requirements for FHA loans includes minimum property standards. The property must be your primary residence. Houses must meet safety, security, and soundness standards, which apply to the electrical system, water heaters, roofs, property access, and more. Minor defects and normal wear repairs are not required if they don’t affect those standards.
An appraiser will report the property’s condition on the FHA’s appraisal form. If the requirements are not met, you can ask the seller to make repairs before selling the property to meet these standards.
However, if the seller is a bank, it may not be willing to do this, and you will have to keep looking to find a property that meets FHA standards, which can increase the timing of the process.
FHA loans have limits on how much you can borrow, set by your region. Check out the loan limits listed by the U.S. Department of Housing and Urban Development.
How long can an FHA loan take, and what are the variables?
The entire process, from applying to closing, could take roughly two weeks to two months, assuming you have found a home and have a purchase agreement. Where do the variables come in?
Gather your documents
When you apply, you will need to have several documents prepared, including proof of your employment history and bank statements. Your loan officer will inform you of what you need. If you carefully compile your documents, and have everything ready to go, it will help the process move more quickly and smoothly.
Be ready to resolve
During the approval process, issues with your credit or bank can pop up, and the underwriter will have to compile a list of conditions that must be met before moving on. If you are able to respond in a timely manner to help them get these issues resolved, it will help keep things moving.
Other occurrences that can delay the process include:
- Bank withdrawals or deposits while loan is under review
- Issues with down payment
- Changes to your income or job
- House appraises below the purchase price
- Property has title issues
- Property does not meet FHA standards for safety, soundness, and security
Get started with your FHA loan qualification process
Fortunately, your Homefinity loan officer knows these issues can occur and will prepare you for what’s to come, so you can avoid the headaches later. Ask your loan officer about timing, give them your timeline if it’s of critical importance to you, and ask them how you can help things move along effectively.
Contact us today to apply for an FHA loan and move toward getting in the door of your dream home.
Homefinity is not affiliated with any government agencies. These materials are not from HUD or FHA, and were not approved by a government agency.