The Process of Completing an FHA Application
Many people wanting to buy a home believe that the FHA application process is long, tedious, and complicated but in reality, with a good lender and a bit of research ahead of time, the process is quick and easy. The best thing a buyer can do is learn the various forms of documentation required before meeting with a lender. That way, all of the mandated information would be readily available, resulting in an easier and faster process.
When going through the FHA application process, lenders are going to be concerned about two primary factors, one being the amount of the mortgage and the second the borrower’s debt versus income ratio. By looking at the numbers associated with these two factors, the lender would feel more confident about securing the loan because risk of default would be low.
For the mortgage payment, which includes the principal loan amount plus interest, property insurance, and taxes, the amount should be no more than 31% of the borrower’s monthly gross income. Then for the debt to income ratio, the lender would look at the individual’s debt paid each month including car payments, credit cards, student loans, etc. versus how much money he or she has coming in with the goal of keeping debt no more than 43%.
Keep in mind that the fewer lines of credit you have open and available to you the better. If you have multiple credit cards and other lines of credit available for use, most lenders assume that you use it and that there is some sort of debt there. Even if you have nothing charged to your credit cards, they will assume that some of that credit is being utilized. After all, you could go out and spend a couple thousand dollars on that credit card right after your meeting with the lender. There is a certain amount of risk that they must calculate in if you have numerous credit lines open. Again, the FHA application process would determine if the person’s numbers were in alignment with FHA guidelines.
The most time consuming process is the FHA loan processing phase. This is when your file is presented to the FHA investors and all documentation is reviewed. When working through the FHA application process, the more accurate information you are able to provide, the better. The process will be a much smoother transaction if you are prepared with the appropriate documents.
With the FHA application completed and before the loan would be offered, an appraisal on the property would have to be done. This way, small and large damage or potential problems would be identified beforehand. Based on the findings of the appraisal, the borrower might be able to negotiate with the seller resulting in the sale price being lowered in return for the borrower doing some of the work whereas other items would be non-negotiable. With the repairs done and the loan approved, closing on the property would occur and the keys to the home handed over to the new owner.
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