How to Make Sure Your FHA Loan Gets Approved

Summary: Are you planning to apply for an FHA loan to buy your home? Are you sure you qualify for one? Read this to find out what you need to do, to get your FHA loan approved.

An FHA loan can help you buy a home with as little as 3.5 percent down payment, even if you have low credit score. But unless you qualify for one, it is difficult for your loan to get approved. Here is what you need to do to make sure your FHA loan gets approved:

Make sure you have verifiable income

A steady income is one of the main requirements to qualify for an FHA loan. So make sure you have all your pay-stubs and tax returns that can validate your current income. You stand at an advantage if you have worked with the same employer or at least in the same field for a minimum period of 12 to 24 months. Nevertheless, there are many FHA-approved lenders who might accept shorter work histories.

You should be able to afford your housing payment

Being able to afford your housing payment is one of the main things that can help you qualify for an FHA loan. Ideally your mortgage payment should fit into 35 percent of your gross monthly income. If you have any car loan or credit card payments, the total amount that you pay (including your mortgage payment) should not exceed 48 percent of your monthly income. In case you are unable to meet these ratios, it would be a good idea to pay back your other debts before purchasing a home. Alternatively, you could also look for another steady source of income.

Start saving up for your 3.5 percent down payment

The 3.5 percent down payment of an FHA loan is very low when compared to that of a conventional mortgage. If you try and reduce your expenses, you might be able to save up this amount quite easily. You can also borrow this amount from one of your relatives if you are unable to save up. Thankfully there are also many down payment assistance programs offered by housing finance agencies and local municipalities to help first-time home buyers buy their dream homes. Some of these programs even help with the closing costs of your FHA loan. 

Establish your credit history

You can get an FHA loan even if your credit score is as low as 580. However, you will need an established credit history with a minimum of two lines of credit. Student loan and credit card payments can be factored into your credit score. However, you can qualify for an FHA loan even if you don’t have a formal credit history. Make sure you have with you, the receipts of your rent and utility bill payments. By making your payments on time, you show how well you can manage your payments. 

Take measures to improve your FICO score

A minimum FICO score of 580 is required to qualify for the FHA loan program. But you definitely stand a better chance if your score is more than that. Many FHA- approved lenders who look for borrowers through FHA live transfer leads set 640 as minimum credit score requirement to approve FHA loans. Make sure you find out the minimum credit score considered by your chosen mortgage lender to approve FHA loan applications. This should be done before you apply for your loan. If your score is well above this mark you can be sure to get your FHA loan approved. If not, here are a few tips to help you improve your FICO score:

• Paying your bills and debt payments on time

• If possible, clear your debts at the earliest

• Avoid using your credit card as much as possible

• Don’t apply for any new loans or credit accounts until your FHA loan is approved

• Correct inaccuracies if any, in your credit report

Make sure the home you are purchasing is within the FHA loan limits

Unlike conventional mortgage, FHA loan comes with a maximum limit on the amount that you can borrow. This amount can vary from state to state and country to country. However, if you try, you can always find a home within the maximum limit of your FHA loan.

Select the right type of FHA loan

FHA loans are available in different types. You can go for an adjustable rate FHA loan or select one with a fixed interest rate. There are a lot of varieties under adjustable rate FHA loans. For instance, if you select a 3/1 adjustable rate FHA loan, you will be paying interest at a fixed rate for a period of three years. After that the interest rate will be adjusted every year. The term of the loan can vary from 10 years to 30 years. The type of loan you choose depends totally on your ability to pay back.

Find out what you have to pay for

The down payment of 3.5 percent is not the only thing you pay for in an FHA loan. There are a few closing costs and also the private mortgage insurance (PMI) which is mandatory for every borrower who makes a down payment that is less than 20 percent. The mortgage insurance premium needs to be paid upfront as well as monthly, along with your mortgage payment. You can get this reduced by signing up for the FHA-approved credit counseling program. 

By now you would know if you qualify for an FHA loan. If you think you do, your next step should be to get pre-approved with a lender of your choice. This lender could be a bank, a credit union, an online mortgage lender, or even an independent mortgage lender who might approach you through FHA live transfer leads. Get quotes from two to three lenders and compare their rates, fees, and payment terms, before making your decision.