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The FHA Loan Process

Get an FHA Home Loan and Your Family Can Finally Have Their Own Home

Get an FHA Home Loan and Your Family Can Finally Have Their Own Home

Applying for an FHA loan is pretty much the same no matter which mortgage lenders you approach for the loan.  It’s important to remembered that the FHA itself does not actually give the loan to you.  Rather, what they do is to insure the loan at the lender’s level.

But, because they are on the hook for the money that you borrow if you fail to pay back the loan, they are involved in the entire loan process; including an inspection of the property which you are buying to make sure that the property you are attempting to buy with an FHA loan meets their construction and repair standards.

Getting an FHA loan is a four step process.

Step 1 – The Application

First, you will need to fill out an application for the loan.  In today’s highly competitive marketplace,  it is often possible to complete the FHA loan application process online.

This makes it easier for the mortgage lender and for you.  Not only do you not have to go to the lender’s office or wait for mail delays, but you also can complete multiple applications and review the offerings of different FHA approved lenders.

Most mortgage lenders will then review your application.  Once you have applied for the loan, the lender will generally contact you or give you instructions on how and when to contact them.

Based upon the company’s internal procedures, that contact may be by email or telephone.  At that time, an appointment will usually be set up for you to speak with a loan officer.  If the company is not local to you, the interview will usually be conducted over the telephone.

Even if the company is local to you, they may not want applicants in their business office.  Not all loan companies are set up like banks, which typically have a lobby constructed properly for dealing with customers in person.

Step 2 – The FHA Loan Interview

The FHA loan interview process accomplishes four things.

First, it provides the loan officer an opportunity to ask any questions that the lender may have about your loan application.

Second, your loan officer will go over additional information that will be required to make a final determination as to whether an FHA backed loan will be granted to you.  The loan officer will also let you know how quickly you will need to provide the additional information to obtain the best service possible.

Third, with today’s computer technology most companies can review your application quickly, if not immediately, to determine whether you are actually qualified to receive an FHA loan.

Fourth, in the event the mortgage lender decides that you do not qualify to receive an FHA loan, based upon FHA guidelines, at that time, your loan officer will chat with you about what you might do to improve your chances of being approved for an FHA loan in the future.

It’s very important during the interview that you inform your loan officer of any special situations that occurred in your life that might positively or negatively impact your application for an FHA-backed loan.  Most things will appear on your credit report anyway.  However, if there is a major negative that is not a part of the public record, such as an expunged or judicially sealed criminal conviction, I personally would not mention it.

Positive information may of course improve the chances of your loan being approved.  And negative information may adversely affect the possibility of your loan being granted.

Negative information is not always a “NEGATIVE.”  This is a place where “spin” may help you.  The right, truthful spin can sometimes be turned into a positive.  Things happen in people’s lives and this is your opportunity to explain the situation from your point of view… You may not get another opportunity to do so.

Most mortgage lenders recognize that “bad things happen to good people,” and that while people sometimes make bad decisions they do sometimes change… In other words, if something negative that was true about you two, three or even five years ago is no longer true about you, this is your opportunity to tell the mortgage lender what happened and why it’s no longer true. And, that can be seen as a very positive thing… You successfully responded to and improved a negative situation in your life.  Doing that is usually a definite sign of maturity in the lender’s eyes.

Step 3 – Processing An FHA Loan

After you have successfully applied for the loan and made it through the interview with your loan officer, the mortgage lender will process your loan application for an FHA backed loan.  Sometimes people wonder why it takes so long for a mortgage lender to process their loan.

The fact of the matter is, there is quite a bit that happens during this step of the FHA loan process.  Your application will be completely verified.  All information in your application will be checked for accuracy, as well as truthfulness.  Documents will be collected if they have not already been provided.  Some of the documents that will be required include credit reports, bank statements, W-2s, 1099s, paycheck stubs and more, as necessary.

If you are self-employed, it will also be necessary for you to prove that you actually make money in your business.

In most cases, the lender will want to see things like previous tax filings (your personal 1040s, including Schedule C and related schedules and individual tax filings from your business itself) for several years in the past.  Depending on your situation, the lender may require as many as five years or more of complete tax filing information.

If you are self-employed or employed by a company that you own a significant share, your mortgage lender will also require you to provide a company P&L statement as well as a balance sheet and all bank accounts and related statements.  If you have company assets such as stocks, other securities, bonds and similar financial instruments, real estate or marketable commodities, which will be used to secure the loan or which are critical to the determination of your net worth or the company’s net worth, the lender may also require detailed write-ups concerning those assets.

As a general rule, if you are self-employed, the business equivalent of anything that you had to provide personally will also be required for your business.

So, you can see there’s quite a bit of information that you will be required to provide so that your mortgage lender can process your application.  Most of this information will be requested during your interview or immediately after the interview in the form of an informational packet that you will receive from your lender.

It is extremely important that you provide all of the information requested by your mortgage lender as soon as possible.  One of the major reasons that some loans takes so long to fully process is failure on the applicant’s part to provide the requested information in a timely fashion.

The loan companies assume that you are an adult and self-motivated, so they are not going to continually follow-up with you to make sure you provide them with the information they need.  In fact, if business is very good, and they have more applicants for loans than they actually want, you may not find out that your application is being held up because of missing information until “they get around to it,” or until you contact them in frustration to find out what’s taking so long with your loan.

By the way, this is one area where your real estate agent, if you have one, can really help you out.  A good real estate agent will almost always be aware of the status of your loan application at any point in time.  Plus, if your mortgage lender is local, your real estate agent may actually personally know your loan officer; and that can help immensely when it comes to expediting the processing of your loan application.

Step 4 – Loan Approval & Closing Of An FHA Loan Property

After you have completed the first three steps and your FHA loan application has been completely processed and all of your information has been verified, your lender will inform you as to their decision concerning whether or not they will grant you a mortgage.  The entire process from start to finish could take as long as two or three months… And, sometimes longer.  If you “know someone,” the many things that your mortgage lender needs to do before you obtain final approval of your loan requests could conceivably be “fast-tracked” in a week or two; but that is rare.

When you are attempting to obtain an FHA loan guarantee, the evaluation criteria are fairly standard, so if you are approved by one lender, you will probably be approved by other lenders.  Conversely, if your loan application is rejected by one lender, it will probably be rejected by all lenders.

Once your loan has been approved, a closing will be scheduled. And, from this point on, you are in your local closing process… Not the FHA loan approval process.

Although there may still be some localities which require a “sit-down” closing, with both buyer and seller present, most closings today occur at the title company’s office and at the convenience of the individual parties to the transaction.  Basically, you will show up when it’s convenient for you and the seller will show up when it’s convenient for them.  Your mortgage lender will supply any required documents and checks.  The  title company will supply the title search results and title insurance, as appropriate for your transaction.  You will sign the documents that apply to you, they will sign the documents that apply to them and the title company will do the rest.

One thing that you need to be aware of… The closing is where the title company makes sure that all the of the money is right.  If it isn’t, you will be expected to supply any shortages before the sale can “close.”

Once your deed has been filed, the title company will supply you with the deed, the mortgage, title insurance and closing documents, as appropriate for your transaction.

Congratulations!  If you got this far successfully, you will own your home as soon as the title company files the deed.

To find out more about what happens after your loan has been approved, <click here > to read our article entitled “Loan Approved!