The thing about loans is that they can be different to different people. Some people may find them troublesome, and this is usually due to a lack of preparation. Like mind sports, loans need a lot of brainwork and foresight to veer away from miscalculated danger. This is particularly the reason why one has to be immersed in total research and understanding of how things work and what involves what.
Loans can be a horrible nightmare when a borrower is caught off-guard. However, please know that this isn’t always the case. When dealt with smartly and openly, especially with a good amount of savings on the side, loans can aid you to financial stability. There is a reason why the collection of loans last for years on end—to make sure you’re able enough to still go through life without having to cripple yourself financially.
If you feel like you already know enough about the home loan type you deem best for your circumstances and you feel that you are prepared to apply for one, your next step is to find out what is needed for an FHA loan qualification. How easy is it to bag one, anyway?
If your main concern is the documents needed for submission, here they are:
- Address to your place of residence (past two years)
- Social Security numbers
- Names and location of your employers (past two years)
- Gross monthly salary at your current job(s)
- Pertinent information for all checking and savings accounts
- Pertinent information for all open loans
- Complete information for another real estate you own
- Approximate value of all personal property
- Certificate of Eligibility and DD-214 (for veterans only)
- Current check stubs and your W-2 forms (past two years)
- Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals
At the same time, know that these are only documents and the bulk of the decision for you to be granted a loan is your financial standing. Firstly, financial institutions and banks check your credit report and credit score. To distinguish one from the other, a credit report is merely just a report of how much you’ve been spending, what you’ve been spending on, and how quickly you’re able to pay off your debt for funds spent. A credit score, contrarily, is how expertly and efficiently you’re able to pay them off. Consider your credit report your grade. That said, lenders look at your FICO score. In order for you to find out for yourself what your standing is, you may obtain these reports from the credit reporting bureaus of the U.S.—TransUnion, Equifax, and Experian.
Evaluate your transactions and check for mistakes. Know that errors and inconsistencies can damage your likelihood of a loan approval, so make sure everything is accurate.
Remember that your FICO score will also determine how much you will need to pay for a down payment. Anyone who reaches a FICO score of 580 or higher can purchase a home with as little as 3.5% only. Anyone whose scores range from 500 to 579 will need to deposit 10%.
The next thing lenders look at is your debt-to-income relationship. All of your recurring bills, on top of estimated mortgage payments and house taxes, stacked against your monthly salary is a big factor. How much you earn will be looked at, but how much will be left from your take-home pay after all your bills and future loan fees will be deducted will matter more.
Lastly, the amount of savings you have prepared will also be checked. Do you have enough for a down payment? What about closing costs, attorney fees, and land titles? Payments like these will be collected up front, so saving is a must.
Ultimately, how smooth your FHA loan application will be will depend on how qualified you are. If you have all the paperwork needed, if your income capacity compliments the loan arrangement you choose, and if your credit score is within the accommodated range, then your application should be a breeze. Once you feel like you have everything covered, visit hud.gov and use their search box to look for an FHA-approved lender to get things started.