Learn More About Eligibility and FHA Loan Applications

An FHA loan could be the key to homeownership, especially if you're managing a smaller down payment or are building credit. Backed by the Federal Housing Administration (FHA) and offered through approved lenders, FHA loans can make buying or refinancing a home more affordable.

The benefits of FHA loans include competitive interest rates, low down payments, more flexible credit requirements, and easier refinancing with the streamline program. Applying for an FHA loan is similar to the way you apply for other mortgages. In this guide, we break down how to apply in 10 simple steps.

1. Confirm That You Qualify for an FHA Loan

Any U.S. citizen who meets the credit score, income, and financial requirements can qualify for an FHA loan. These requirements include a steady income, established credit, funds for a down payment, and a debt-to-income ratio (DTI) that meet the standards of a particular mortgage lender. Learn more about FHA loan requirements.

2. Understand FHA Loan Limits

The Federal Housing Administration sets a limit on the amount of money you can borrow with an FHA loan, which can limit the price of houses you may be able to buy. These FHA loan limits vary by county and currently range between $541,287 and $1,249,125 for a single-family home. These numbers are regularly updated.

3. Get Prequalified

Before you begin house hunting, consider getting prequalified for an FHA loan, where your lender reviews basic information about your income, assets, debts, and credit to estimate how much you may be able to borrow. This step can help you understand your budget and show sellers you're a serious buyer.

4. Gather Documentation

You'll need to provide documentation that verifies your financial information. Lenders typically request recent pay stubs, W-2s or tax returns, bank statements, and details about any debts. Having these documents ready can help streamline the FHA loan application process and reduce delays. Your lender will let you know if any additional paperwork is needed based on your individual situation.

5. Apply for an FHA Loan

You apply for an FHA loan the same way you apply for other mortgages. You'll fill out an application and provide credit, income, and financial documents. These are the same steps for any new loan, whether you're buying a house or refinancing to get cash from your home's equity with an FHA cash out refinance loan.

Simpler Applications for FHA Loan Refinances

When you're refinancing an FHA loan, you're often able to use the FHA streamline program, which has less paperwork and faster closings. At Freedom Mortgage, we can often take your FHA streamline refinance application over the phone.

6. Make a Down Payment

When buying a house with an FHA loan, you're required to make a down payment, and the minimum depends on your credit score. If you have a credit score of 580 or better, you can make a down payment as low as 3.5% of the price of the home. That means that if you want to buy a house that costs $300,000, your down payment would be $10,500. If you're a Freedom Mortgage customer, primary borrowers can check their credit score on our mobile app.

7. Understand FHA Property Requirements

When applying for an FHA loan, the home you want to purchase must meet the FHA's property standards. As part of the process, your lender will order an FHA appraisal to confirm the home's value and ensure it meets minimum property requirements. This is not the same as a regular appraisal.

During the appraisal, a licensed appraiser evaluates the property's condition, safety, and livability, checking for issues such as structural problems, roof damage, or health and safety concerns. If the home doesn't meet FHA standards, repairs may be required before the loan can move forward.

8. Understand the Mortgage Insurance Premiums

FHA loans don't have private mortgage insurance (PMI), but they do have two kinds of mortgage insurance premiums (MIP):

1. There's an upfront mortgage insurance premium (UFMIP) that's equal to 1.75% of the principal loan amount you'll need to pay when you buy or refinance a home. For example, if you're borrowing $200,000 with an FHA loan, then your upfront premium would be $3,500.
2. There are also annual mortgage insurance premiums (MIP) that typically range from 0.15% and 0.75% of the loan amount. You'll pay these premiums as part of your monthly mortgage bill.

Experienced Freedom Mortgage loan advisors can help you understand how your down payment, mortgage insurance premiums, and other factors might affect your monthly payment. Check out our FHA loan mortgage calculator to learn more.

9. Check the Closing Costs

FHA loan closing costs average between 2% and 5% of the home's price. These costs might include FHA loan application fees, discount points, and the upfront mortgage insurance premium.

10. Sign Your Disclosures and Attend Closing

You'll need to sign your disclosures and attend the closing of your FHA loan, just like you do for other types of home loans.

Final Thoughts: Applying for an FHA Loan

Applying for an FHA loan may feel overwhelming, but it's not so different from applying to other kinds of mortgages. From checking your eligibility and gathering documentation to completing the appraisal and final approval, each step is designed to ensure you're prepared for homeownership. You can learn more about our mortgage application process here.

If you're ready to see how much you may qualify for, get prequalified today to better understand your options.