The Federal Housing Administration's Section 203(b) mortgage insurance is the agency's most widely used program. You can buy or refinance a single-family home of up to four units with an insured loan. The government guarantee protects the mortgage institutions which make the loans by promising to cover their losses in the event of default. FHA 203(b) loans allow borrowers with modest incomes, credit challenges and down payments as low as 3.5 percent to obtain affordable financing. Once you've decided that this FHA program is for you, you have more steps to take before submitting an application.
Determine the maximum FHA loan amount allowed in your area. The government limits loan size based on median home prices, therefore, high-cost metropolitan areas of the country have high loan caps. Check the Department of Housing and Urban Development's online database by entering the county in which you plan to buy or refinance, and select "FHA Forward" within the "Limit Type" tab. Different loan amounts appear for one- to four- unit homes.
Find FHA-approved lenders in your area by searching HUD's online database. You might also check with your bank or current mortgage holder to see if it is an FHA-approved lender.
Interview at least two lenders to determine which you'd like to apply with. FHA designates a unique case number for each property and only one lender can work on a case number at a time. Decide on a lender before applying to avoid problems with application processing. In the event you decide to change lenders, you can ask the original lender to release the case number so you can go somewhere else.
Complete the Uniform Residential Loan Application supplied by the FHA lender. You and any co-borrowers must provide sensitive information including Social Security numbers, income and asset and debt amounts, as well as disclose past bankruptcy, foreclosure and federal debt information. You also must let the lender pull your credit report. The FHA doesn't insure loans for borrowers with credit scores less than 500 or borrowers who are delinquent on government debt. The lender may process the application for approval using an automated underwriting system, or manually with an underwriter, to determine your eligibility.
- Applying for an FHA loan entails submitting the official Uniform Residential Loan Application. A lender that asks you to fill out anything other than this form is actually prequalifying you to determine whether you should apply. Lenders often prescreen you to ensure you meet basic criteria before putting time and resources into the application and underwriting.
- Following preliminary loan approval after the application, you must submit recent income and asset and employment documentation to substantiate the information on your application. Most 203(b) loans also require that you pay for an FHA appraisal of the home you are interested in.
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