The Process: How to Apply for an FHA Loan

Do you feel like an 203(b) loan is the best option for your home buying needs? It could be, although there are many different loan programs out there. The best decision is to speak with a lender to determine which option is best suited to your unique financial situation and buying requirements.

Again, there is no one-size-fits-all solution here. While FHA loans are highly beneficial and allow you to put down a lot less money, they do come with additional considerations. Working with a reputable lender will help you identify the best path forward for your specific situation.

With all that being said, having a decent idea of the FHA loan process is a good idea. It will help you understand what to expect so that you do not encounter any unexpected hurdles or challenges. The overall process will resemble the outline below.

1. Find Your Lender: The FHA loan process does not begin with the government agency itself. Instead, it begins with a lender that participates in the loan program. Most lenders do participate, but there are exceptions. Also, not all lenders are created equal, so it is important to research your options first. Make sure you discuss all your loan options with the lender prior to deciding to go with an FHA loan.

2. Apply for a Loan: Once you have found a lender, you’ll need to complete an application form. If you have decided that you want to go with an FHA loan, you’ll need to complete Fannie Mae form 1003 and HUD form 92900-A. You will also need to provide additional information in the form of the following. Your lender will explain exactly what documents are necessary, but we have also included convenient checklist at the end this guide:

   1. W-2 forms

   2. Bank statements

   3. Tax returns

   4. Paycheck stubs

3. Case Number: While you do not have to actually do anything at this stage, receiving your FHA case number represents a step forward, closer to homeownership. Now is a good time to start looking for homes if you have not already found one that you want to make an offer on.

4. Appraisal: When you have found a property, it will need to be appraised as discussed previously within this guide. Once the appraisal comes back and the home is verified as meeting HUD’s requirements, the process can continue. In most instances, your lender will recommend an appraiser.

5. Underwriting: The underwriting process can be quite lengthy, although there’s little for you to do as a buyer. This is backend stuff that is handled by the lender or by an agent working with the lender. The underwriter’s job is to assess risk, determine whether there are any obstacles that need to be cleared up, and more.

   They will dig into your employment history, your payment history on debts, your credit score, debt-to-income ratio, and a great deal more. This can be one of the most daunting aspects of the entire process, and you should be prepared for the underwriter to ask for further information, to further illuminate existing situations, or even to ask for documentation that you have already provided.

6. Clear to Close: Once the underwriter has had time to evaluate your situation and your risk level, he or she will make a decision about whether to approve you or not. If the underwriter rejects you, then you will be notified by the lender, and the reason for the rejection may be explained. However, if you are approved, the lender will notify you that you are “clear to close”, which means that you can move ahead with closing on the home.

7. Closing: The closing process is really just a day spent signing various documents. You will need proof of identification (a state-issued driver license will work). You will also need a means to pay the closing costs. These include things such as document preparation fees, loan origination fees, appraisal and inspection fees, and the like. In most instances, this has to be a cashier’s check. However, some lenders prefer that you wire the money instead.

Closing can be incredibly exciting, but it can also be daunting. You will be required to go through a massive stack of papers with the title company, and your signature is needed on pretty much all of them. It’s vital that you understand what you are reading. If something is unclear, ask the title company agent for clarification.

Once you have finished signing, you are done and should be given the keys to your new home. Congratulations!