How to Apply for an FHA Loan | Requirements 2023

How to apply for FHA loans

An FHA mortgage is a great way to buy a house without needing a significant down payment or a perfect credit score.

While the federal government backs them, FHA mortgages are available from just about any private lender. So it’s easy to apply and shop around for competitive rates.

You can start your application online and even close digitally in some cases. Or you can work in-person with a loan officer for extra guidance. You get to choose your lender and mortgage experience.

In this article (Skip to...) 

• How to apply
• Documentation needed
• Approval requirements
• Comparing lenders
• Begin your application

How do I apply for an FHA loan? 3 Steps

FHA loans are insured by the Federal Housing Administration, an arm of the Department of Housing and Urban Development (HUD).

Thanks to their government insurance, FHA loans can offer low down payments, more lenient credit requirements, and competitive rates to help low to moderate-income buyers achieve their homeownership goals.

Although the Federal Housing Administration insures FHA mortgages, this agency doesn’t actually lend the money. You get an FHA loan from a private lender, just like you would a conventional one.

So the first thing you need to do is choose a lender you want to apply with.

1. Find a lender

The first step to getting an FHA home loan is finding an FHA-approved lender. The good news is that most banks and mortgage companies offer this type of mortgage, so finding a lender shouldn’t be a problem.

You can get FHA financing from banks, mortgage brokers, credit unions, and online lenders.

The right lender for you will depend on a few factors. For instance, if you have a lower credit score, you’ll want to ensure your lender accepts FHA’s minimum of 580 (some lenders set the bar at 600 or higher).

You should also think about how you want to work with your lender. Do you prefer physical interactions? Look for a local lender that focuses on in-person and over-the-phone lending.

If you prefer a more independent approach, a wide variety of mortgage lenders will allow you to complete most or all of the mortgage process online.

2. Apply for an FHA loan

After finding a lender, the next step is to submit a loan application.

Many lenders let you apply online, though some will connect you with a loan officer to complete your application over the phone or via email.

Since mortgage terms and rates can vary from one lender to the next, you should contact multiple lenders to compare offers. This helps you find the best deal.

Ideally, you should request quotes from three to five lenders so you know you get the best interest rate and lowest fees available.

Lenders will typically check your credit before providing rate information and issuing a pre-approval. But don’t worry about the effect on your credit score.

As long as you submit all your mortgage loan applications within a 45-day window, they’ll be reported as a single credit inquiry on your credit report. This way your score won’t be dinged multiple times.

3. Provide basic details

Lenders will need basic personal information and property details to start your mortgage application.

When you initially apply for an FHA loan, be prepared to provide the following:

• Your full name
• Your Social Security Number
• A copy of your driver’s license or other state-approved ID
• Income information
• Employment history
• The property address
• Purchase price of the property
• Down payment amount

Once you’ve provided this basic information, the lender will request supporting financial documents to verify your income, savings, and debts. You can see a list of supporting documents you’ll be asked for below.

4. Compare Loan Estimates

After you submit a loan application, the lender must provide a Loan Estimate within three business days.

The Loan Estimate (LE) is a standard form all lenders use. It’s designed to keep the loan process transparent by providing information about a borrower’s estimated interest rate, monthly mortgage payments, and closing costs upfront.

The LE also provides information about the loan type and term, so you know you’re comparing mortgage offers on equal footing. (For instance, an FHA loan with a 15-year term would have much higher payments than one with the same loan amount and a 30-year term.)

Make sure all your loan offers quote the same loan type, loan term, and loan amount. Then compare interest rates, annual percentage rates (APR), and upfront fees to find the best deal.

Documents needed to apply for an FHA loan

When you initially apply for an FHA loan, lenders will ask about your income, savings, debts, and assets.

Once you decide to proceed with the loan, they’ll need proof of the information you provided. That means submitting a variety of financial documents.

You’ll typically be asked to provide the following:

• Tax returns from the past two years
• W2s from the past two years
• Bank statements from the previous 60 days
• Financial statements for other assets (investment accounts and retirement accounts)
• Recent pay stubs
• Proof of other income, such as Social Security or disability income
• Name and address of your employers over the previous two years
• Year-to-date Profit and Loss statement, if you’re self-employed

The lender will also pull your credit score and credit reports. Authorizing a credit check allows the lender to view your credit history and verify your current debt load and minimum monthly payments.

Requirements to get approved for an FHA loan

Applying for an FHA mortgage is fairly straightforward. But how do ensure a successful approval?

The good news is, it’s easier to qualify for an FHA loan than many other mortgage programs. Here’s what you can expect.

• Credit score: FHA home loans require a minimum FICO score between 500 and 580. (Most lenders require at least 580.) By comparison, a conventional mortgage requires at least a 620 FICO score
• Credit history: You’re typically allowed no more than one 30-day late payment within the past 12 months. In addition, you shouldn’t have a foreclosure in the past 3 years or a recent bankruptcy
• Down payment: FHA loans require a minimum down payment of 3.5% if your credit score is 580 or higher. If your credit score is between 500 and 579, you’ll need a minimum down payment of 10%
• Loan-to-value ratio (LTV): LTV compares your loan amount to the home’s market value. This is another way to express down payment requirements; since at least 3.5% of the purchase price is required as a down payment, your loan-to-value ratio must be 96.5% or lower
• Closing costs: You’re also responsible for closing costs, which are lender and third-party fees, such as origination or underwriting fees. Closing costs vary by location, but typically range between 2% and 5% of the loan amount. This expense is on top of your down payment, so you need to budget for both amounts
• Debt-to-income ratio (DTI): Your DTI ratio is the percentage of your gross monthly income that goes toward monthly debt payments for items such as student loans and credit cards. For an FHA loan, your DTI ratio typically shouldn’t exceed 45%. Lenders might allow a higher DTI if you have compensating factors such as an exceptional credit score or large cash reserves. Typically, you’re allowed to spend up to 31% of your gross monthly income on the house payment

Also remember that FHA loans charge an additional fee called mortgage insurance premium (MIP). This is basically equivalent to the private mortgage insurance (PMI) paid on a conventional loan.

There are two MIP fees: an upfront mip (UFMIP) equal to 1.75% of the loan amount, which most borrowers roll into their loan balance, and an annual fee paid in monthly installments with your mortgage payment.

FHA loan property requirements

The home you plan to buy needs to meet eligibility requirements, too.

For instance, the home must be a primary residence, meaning you plan to live there full-time. It can be a single-family property or a multi-family home with up to 4 units (as long as you live in one yourself).

And your loan amount can’t exceed current FHA loan limits, which are $ in most areas but higher in certain high-cost housing markets.

What happens after you apply for an FHA loan?

The typical timeline from application to closing with an FHA loan ranges from 30 to 45 days.

During this time, your loan file goes through underwriting. The underwriter takes a closer look at your application and reviews supporting documents to ensure you meet the minimum guidelines for FHA financing.

Here’s are the items you can expect the underwriter to review:

• Current debts and minimum payments, then calculate your debt-to-income ratio
• Bank statements and other assets to confirm that you have enough reserves for the down payment and closing costs. If your down payment is coming from a cash gift or down payment assistance, you’ll need documents verifying the source(s) of the funds
• Previous tax returns and W2s statements to confirm a two-year history of stable, consistent income
• Recent pay stubs to verify you’re still employed and earning income
• Schedule an appraisal to determine the home’s current market value

Home inspection

You should also schedule a home inspection after getting a purchase agreement. A home inspection isn’t required for loan approval, but it’s recommended because it can reveal hidden issues with the property.

“This is more important with FHA prior to paying for the appraisal, if possible, as appraisers have stricter guidelines for FHA, and your home may not even be eligible for FHA if there are specific issues,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

If your offer was subject to a satisfactory home inspection, you can ask the seller to correct these issues before closing.

Underwriting

During the underwriting process, your lender might request additional information. Don’t panic — this is common when getting a mortgage.

For example, if your parents gift your down payment and/or closing costs, your lender will request a gift letter. Or if you receive alimony payments, the lender might ask to see a copy of your divorce decree.

Submit the requested information as soon as possible to keep closing on schedule.

Where can I apply for an FHA loan?

The FHA doesn’t offer loans directly, so you’ll need to contact a private lender to apply.

The majority of lenders are FHA-approved, so you’re free to choose a local lender, big bank, online mortgage lender, or credit union.

To find a suitable FHA lender, you can get recommendations from friends or family who’ve used an FHA loan. You can also check with the Better Business Bureau to review a bank or mortgage lender’s rating and read online reviews.

Keep in mind that credit requirements for FHA loans vary between lenders. While many allow a credit score as low as 580, some might set their minimum at 600 or even higher. If your score is on the lower end of qualifying for an FHA loan, you might need to shop around a little more.

Regardless of credit score, you should find at least three lenders and apply with them.

FHA mortgage rates can vary a lot from lender to lender, and you won’t know which one can offer you the best deal until you’ve obtained personalized quotes.

Looking ahead: Refinancing an FHA loan

Looking down the homeownership path, many wonder if they can refinance their FHA mortgages.

Homeowners certainly have options to refinance an existing FHA loan, including:

• Streamline Refinance: Homeowners with an existing FHA loan can use a Streamline Refinance to lower their rate and monthly mortgage payment. It’s a faster option than a conventional refinance and requires less documentation
• Refinancing to a conventional loan: This refi option helps homeowners drop their annual mortgage insurance premium (MIP) required for the life of the loan. Keep in mind that you’ll need to meet the minimum credit score threshold and at least 20% home equity to qualify

Start your FHA loan application

Applying for an FHA loan is pretty straightforward. Once you’ve chosen the lenders you want to apply with, their online systems and loan officers will walk you through the process step by step.

Make sure you have all your financial documents on hand to make the application process go as smoothly as possible.

Most importantly, apply with more than one FHA lender. This is the only way to ensure you get the most competitive rate. Remember, even a seemingly tiny rate difference (0.125% or less) can cost you thousands of dollars over the life of the loan.

Luckily, many lenders offer online preapproval. So getting mortgage quotes and comparing rates can be relatively quick and painless.