How to Apply for an FHA Loan - A Guide to FHA Mortgages

Reader Question: “I do not have enough money for a 20% down payment, so I am considering an FHA home loan. My question is, how can I apply for an FHA loan online? Is there a government website for this, or do I apply through a regular lender?”

I promise to answer all of your questions in this article, but I’d also like to expand on this topic for the benefit of other readers. So let’s take a closer look at what these loans are, how they work, and how to apply for them.

If you’re already familiar with this subject, and you want to get started applying right now, you can click the “eligibility” button above. Otherwise, keep reading to learn more about FHA loans.

Meet the Federal Housing Administration (FHA)

The FHA was first created in 1934. It’s part of the federal government, managed by the Housing and Urban Development (HUD). The purpose of this organization is to make home ownership affordable to a larger number of Americans. The FHA does this by insuring the mortgage loans made by approved lenders. This is an important distinction to understand. The Federal Housing Administration does not make loans to consumers — instead, it backs the home loans made by primary lenders (such as Wells Fargo, Citi, local mortgage companies, etc.).

The FHA insures these lenders against the risk of default. In other words, if the homeowner falls behind on the mortgage and can no longer make payments, the federal government will help cover the lender’s losses. This reduces the amount of risk involved in making the loan. When there’s less risk involved, a lending institution is more inclined to lend money to borrowers who probably wouldn’t qualify for a loan otherwise — borrowers who can’t afford a big down payment, or those with less-than-perfect credit scores.

Applying for an FHA Loan

With that background material out of the way, let’s talk about how you would apply for an FHA home loan. For the most part, the process is the same as applying for any other type of mortgage loan. You would start by submitting an application through a regular lender.

This is where many people get confused. The FHA does not make the loans directly to consumers. They insure the loans made by primary lenders. So you would not apply through the FHA — you would apply through a mortgage lender who offers FHA loans. So your first step is to find an approved lender, and you can do that in one of two ways:

• You can also use the FHA’s lender search engine tool.

Once you apply for a loan, your application will be reviewed to ensure it meets the requirements set forth by the FHA.

What to Do Before You Apply

Before you apply for an FHA home loan, there are some preliminary tasks you should take care of. This involves gathering your paperwork, reviewing your credit, and more. Here are some of the steps you should take before applying:

Check your credit score and your debt-to-income ratio. These are two of the most important qualifying criteria the lender will look at when you apply for the loan. So it’s a good idea to see them for yourself. You can get your credit score through the link provided in the upper-right section of this website, and you can find debt-to-income calculators online.

Check the average interest rates for the type of loan you want (fixed-rate or adjustable). You may or may not qualify for the average rate, because it’s based on your credit score and other factors. Still, it’s good to survey the landscape before venturing into it. You can get this information from the Freddie Mac weekly survey.

It’s also a good idea to gather your paperwork before you apply for an FHA mortgage loan. This includes employment information for the last couple of years (employer name and gross monthly salary), as well as W2 forms and bank statements for the last two years.

I hope you’ve enjoyed this tutorial on how to apply for an FHA loan, and I wish you success with your home-buying journey. If you have any more questions about this subject, be sure to email them to me.

Leave a comment