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FHA loans have become a popular tool for home financing, particularly among first-time home buyers. This program offers a unique form of insurance that protects the mortgage lender and results in easier qualification standards for borrowers.
This tutorial explains how to apply for an FHA loan, online or in person. It also "dissects" the standard application form that is used for both FHA and conventional home loans.
So without further ado, here's how to apply for an FHA-insured mortgage.
How to Apply for an FHA Home Loan
To apply for an FHA loan, you must first locate a lender that has been approved to participate in the program. Lenders must be approved by the Department of Housing and Urban Development, or HUD, the federal department that manages this program. Otherwise, they cannot issue FHA-insured mortgages.
The good news is you won't have any trouble finding such a lender. It's a popular product, so many mortgage companies offer it these days. You can find a list of "HUD-approved" lenders on the HUD.gov website. Just Google it.
Many local, state and regional banks participate in the program, as well as credit unions. So, if you have an existing relationship with a bank or credit union, ask if they offer FHA loans (and how to apply).
Once you've identified a lender, you need to complete a standard mortgage application. The full name of this document is the Uniform Residential Loan Application. Fannie Mae Form 1003 and Freddie Mac Form 65 are both acceptable, as they are basically the same document.
When you apply for an FHA loan, you must also complete several HUD-specific documents. There may be five to seven of these documents, depending on the conditions and terms of your loan. They include the HUD-92900-A addendum and the FHA Loan Underwriting and Transmittal Summary. These are boilerplate documents with spaces for you to fill in the blanks, check the boxes, etc. Your lender should provide all of these documents when you apply for the program.
You'll also receive a HUD disclosure that encourages you to get a home inspection (though it does not actually require it ). You should also receive a "Good Faith Estimate" document, or GFE, shortly after submitting your application. The GFE estimates how much your closing costs will be, among other things.
Shortly after you apply for an FHA loan, you will be asked to provide a variety of financial documents. The lender will use these to assess your financial situation, and to verify your income, assets and debts. You will have to submit bank statements, W-2s, tax returns, letters of employment, pay stubs, and the like.
All of these documents will go into your loan application file. The file will then get passed along to the underwriter. This person works for the mortgage company and is basically a paperwork detective. He or she will verify all of your documents and ensure you meet the minimum requirement for an FHA loan, using HUD's guidelines as well as the lender's own guidelines. But that's another tutorial entirely. This one focuses on how to apply for an FHA loan. Underwriting is the next stage in the process.
URLA: The Standard Mortgage Loan Application
In order to apply for an FHA home loan, you must complete and sign the Uniform Residential Loan Application (URLA). This standardized document is also known as "Fannie Mae Form 1003." It's the first in a series of documents you will have to provide. For the remainder of this article, I will refer to it simply as the FHA loan application .
You can find this form online with a quick Google search. We have also published a sample application form on our website, for your convenience. Click here to view the full PDF document.
There are eight primary parts of the FHA loan application. Here's an overview of the information you (or your lender) will have to provide in each section:
- Part 1 of the application covers the type of mortgage you are using, the amount of the loan, the interest rate the lender has assigned, the total number of months in the term, and whether it is a fixed or adjustable-rate mortgage loan.
- Part 2 of the application includes information relating to the home being purchased. You will need to provide the full street address, a legal description of the property, the year it was built, and similar information. Also in part 2, you must indicate whether your FHA loan is being used for purchase, refinancing, or construction. You will also check a box to indicate whether the home will be your primary residence, secondary residence, or an investment property.
- Part 3 asks for information about the borrower who is applying for the loan. You'll provide such standard information as name, Social Security number, phone number, date of
birth, marital status, and your present address. If there is a co-borrower, such as a spouse or relative, he or she must provide all of the same information.
- Part 4 asks for employment information. Again, this is for the borrower as well as the co-borrower (if applicable). The borrower and co-borrower must provide details about their current employment, including name and address of employer, number of years at the job, current position or title, and monthly income. The FHA loan application offers a space for your current employer, as well as your last two employers. The lender will probably require you to fill in as much information as possible, relating to previous jobs.
- Part 5 of the FHA loan application is where you disclose your current income. It also asks for information regarding your housing expenses. Lenders use this information to compare your monthly income to your monthly housing costs. On the income side, you (and the co-borrower) will be asked for base income, over time, commissions and bonuses, and other forms of income such as stock dividends or rental income. For housing expenses, you must provide your current rent or mortgage payment, as well as the monthly payment you will incur with the new loan. You must also provide the amount/cost of homeowners insurance, property taxes, mortgage insurance, and HOA dues if applicable.
- Part 6 pertains to your assets and liabilities. In this context, "assets" can refer to money you have in checking accounts, savings, stocks and bonds, or other forms of investment. If you own your own business, you can enter the value of that as well. You can also provide the value of any real estate property you own, as well as your car (if it is owned outright). Your "liabilities" are basically your debts. When you apply for an FHA loan, the lender will want to know about credit cards, car loans, mortgages, child support, alimony, and any other recurring expenses you pay each month. This information, along with the income data provided in part 5, is used to calculate your debt-to-income ratio, or DTI.
- Part 7 of the FHA loan application includes details of the real estate transaction. You must provide the purchase price of the home you are buying, any improvements or repairs that are needed, estimated closing costs and other prepaid items (such as mortgage points). You, or your lender, must then add up the total costs associated with the real estate transaction.
- Part 8 includes a list of simple 'yes' or 'no' declarations. Most of these pertain to legal issues you may have had in the past. For instance, you must declare if there are any outstanding legal judgments filed against you. You must also declare any bankruptcies or foreclosures that have occurred in the past seven years, including any deed in lieu of foreclosures. If you are currently involved in a lawsuit, you must disclose that as well.
References: For more information on the application process, refer to HUD Handbook 4155.1
You Can Apply Online to Broaden Your Options
Let's finish up with a discussion of how to apply for an FHA loan online. The internet has changed the mortgage lending industry in many ways. Among other things, it gives borrowers access to a broader range of products, services and companies. In the past, you would be limited to using a local bank with a "bricks-and-mortar" office location in town. But not anymore. Today, you can go online to apply for an FHA loan through multiple lenders, regardless of where they are physically located.
This provides you with certain benefits. For one thing, you may have an easier time getting approved, and/or getting the kind of loan you want. That's because you'll have access to more lenders, thus creating more options for you.
Here are some places where you can apply for an FHA loan online:*
- www.zillow.com/mortgage-rates/ (Zillow's Mortgage Marketplace)
- The websites of local and state banks or credit unions, in some cases
* We are not endorsing these companies or their services, but merely presenting them for your consideration and continued research.
Whether you apply for a mortgage online or in person, the overall application process is the same. You will have to complete a standard loan application, as explained in the previous section. You will have to provide a variety of supporting documents relating to your income, assets and debts. In the online scenario, you'll just find yourself emailing, faxing and FedEx-ing documents instead of handing them over in person. But it can be done!
This article explains how to apply for an FHA loan, online or off. If you would like to learn more about this popular financing program, please refer to the "Tutorials" menu in the right-hand sidebar area above. We have one of the largest collections of FHA articles and guides, and they have all been updated for 2014.