What’s an FHA loan? The whole loan process explained
In this video, I give you eight steps of what you need to do to buy a home using an FHA loan. I will cover the guidelines, FHA loan limits, what documentation you need and how the whole home buying process works with an FHA loan.
Step 1: What Is FHA and FHA Loan limits?
FHA is not an actual loan. FHA stands for Federal Housing Administration. The government insures the loan so that people with a small down payment can buy the home. Otherwise, without the insurance, the risk would be too significant. Lenders would not be able to approve the loan. FHA loan limits.
Step 2: FICO Requirements For An FHA Loan.
With as low as a 500 FICO score you can buy a home with an FHA loan. From 500-579 you would need to put 10% down. From 580 and above you would only need to put 3.5% down. Gone are the myths of the 20% down to buy a house. You can buy your own home with as little as 3.5% down with an FHA loan.
Step 3: What about Bankruptcy, And Short-Sales
In today’s economy, it is not uncommon to have a bankruptcy on your credit report. The stipulations for an FHA loan requires two years must have elapsed from the time of discharge till the time you can buy. For a foreclosure and short sale, FHA requires that three years must have passed from the day of the short sale or foreclosure till the time you can buy.
Step 4: Debt Ratio Requirements
Here is an example of how the debt to income ratio works for an FHA loan: Let’s say you make 10K a month. You can borrow 47% of that which would be $4,700 towards a house payment. Take the total house payment and all the debts put together, and it should be under 57%. So take your monthly income before taxes. 57% will include your debt 47% will be the house payment.
Step 5: Income Requirements, Work History, And College Certificates
In most cases, you must have a two-year history of working in the same field in the same industry. For example, if you started working for Federal Express delivering packages today and you don’t have a history in delivery for the last two years, then you’re going to have to wait two years before you can use that income. If you worked for UPS for the previous two years or the Post Office or something in the same type of industry then as long as you have that two-year history we’re good.
If you’re self-employed, we’re going to average your income over two years to get your net income. That’s the amount you make after writing off all your expenses. If you have a job and you’re on salary, it’s straightforward. However, if you’re hourly, we’re going to calculate your hourly then average your overtime over two years. So we can look into things in many different ways, we’re experts at figuring this out. Once in a while, people say to me, Chris, I’ve only been at this job six months. Moreover, I ask, did you get an education in this field? A college degree or a certificate program like radiology or a radio technician is acceptable in place of the two years experience. There’s many tips, tricks, and little things we can do. However, you need to show me what it is so I can help you qualify for that loan.
Step 6: Documentation
Documentation Is essential to the loan process. Everything has to be proved on paper. You will need to provide:
• proof of income for the last two years.
For example, you will need to provide two years w-2s for each job and borrower.
• Two years federal taxes (there are few cases where taxes are not required). One month’s pay stubs for all borrowers.
• Two months bank statements for any accounts that you might have.
All accounts including savings account, retirement account, checking account, all banks or credit unions will need documentation.
• Your driver’s license and social security card.
• Discharge papers.
If somebody’s had a bankruptcy in the past, we need the bankruptcy discharge papers. If you’ve had a divorce, we need the divorce papers.
Sometimes we need extra documentation. However, that is all based on your circumstance. The paperwork is vital. If we ask for ten things and we get 9, it’s the same as having zero. We need them all.
Step 7: Here is how the whole loan process works.
• Being Approved
Most lenders out there do “pre-approvals.” The problem is that they’re only worth the paper that they are written on. What I like to do is gather all documentation and send it to the underwriter. The underwriter is the person who approves or denies the file. I submit all the paperwork as if we already have a property ready to go. Then I send them a credit report, bank statements and anything else they may need to approve the loan. After I submit all the documentation, I wait for the underwriter say yes you’re approved, or we need additional documentation which is very common. When you have an underwritten approval, and you make
an offer, you do it from a position of strength.
• Look For Property
After your approved you go out with a realtor. If you do not have a realtor, I know all the best most experienced realtors in the industry. Your realtor is going to show you properties you’re looking for in your circumstance. If you find that one or two properties that you like, the realtor will write an offer and submit it to the agent who did the listing. I then assist in helping to get your offer accepted. In today’s day and age, there are seven to ten offers for every property on the market. Because there’s a shortage of houses, Prices are rising. So, time is of the
• Getting Your Offer Accepted
The seller and listing agent will review all the offers and choose the one that best fits. They’re going look at which offers pay the most money and will close quickly. Sometimes some offers are not very good or not very strong borrowers. That’s where I get involved. I call them up and tell them this is Chris the mortgage pro, and I have a slam-dunk deal ready to go. I say to them that it’s not pre-approved; it’s already approved. That will raise your offer near the top of the list if not to the top. So, that’s a huge deal once the offer is accepted.
• Sign Disclosures
Once the offer is accepted, we start on the actual loan paperwork. Because we are in a bureaucratic age in the mortgage industry, You will be required to sign all the disclosures. Thankfully, we can do it electronically. You can click on your computer or your phone and accept those disclosures.
• Order Title, Open Escrow And Order The Appraisal
This part of the loan is where we order title, open escrow and order an appraisal. We handle all of that, so you don’t have to. The underwriter then evaluates title, escrow, and the appraisal report. The underwriter makes sure there is no other additional items or information needed from the borrower. Once all the documents and information accepted by the underwriter, they issue what is called a “Clear to close.” Now we start doing the happy dance.
• Closing Proceedings
You will receive an email with the closing disclosures. These are final numbers to make sure everything is as it should be. Once you sign the closing disclosures, we start the closing proceedings. Three days later you’re allowed to sign the loan documents with a notary. After signing the docs, we then fund the loan and wire the money to pay it off and then the escrow and title company work together to record the loan. Once the loan is recorded, the property is 100% yours. The realtor will give you the keys, and we have successfully Fired Your Landlord!
Step 8: Most Important Step
The final step is the easiest. Sit down with me, and we can go over your entire situation and see where you are. If you don’t have time to sit down, then you can go to my website and click the apply now button to start the process. Together we are going to Fire Your Landlord!