If you’re buying a home for the first time, the FHA Loan is a great program to get you into homeownership because it has a lower credit score and down payment requirements than most types of mortgages. Buyers with credit scores as low as 580 and a 3.5 percent down payment may be eligible for an FHA loan.
But FHA loans aren’t just for First-time homebuyers; repeat buyers and homeowners looking to refinance can also consider applying for an FHA loan.
Finding FHA financing is relatively easy, as most lenders are FHA-approved. However, this does not imply that you should work with any FHA lender.
These tips will help you find the best FHA lender.
1. Know Your Credit Situation
Before applying for an FHA loan, you must know your credit score. Your credit score could be good enough to qualify for a conventional mortgage, which means you’ll have more options, but your loan options may be limited if your credit score is deficient.
While the FHA qualifies applicants with a credit score of at least two 500, some lenders will not work with you if your score is lower than 580. Only borrowers with a credit score of 580 or higher are eligible for the 3.5% down payment. If your credit score is below 580, you’ll be required to put down 10% of the loan amount.
2. Shop Around and Compare Deals
This is important because one lender may be more lenient when qualifying a borrower and because FHA mortgage rates vary widely. Lenders mark up their interest rates to reflect current market conditions.
Obtain several loan estimates from different lenders to compare and select the loan suitable for you. Check the loan estimate is accurate. Consider the interest rate and total APR, and make sure these reflect what you discussed with the lender. If it’s not, ask the lender why a part of the estimate differs from what you expected.
3. Inquire About Prepayment Penalties
Lenders may include prepayment penalties in their terms to ensure that you pay a certain amount of interest on your loan before paying it off. This means paying off your loan early may cost you more money.
When talking to lenders, find out if their loan terms include prepayment penalties. If they do, you should steer clear of them.
4. Ask About Their Closing Time-Frame
FHA loans close in 30 to 45 days on average, depending on the complexity of the transaction. When speaking with lenders, find out how long it typically takes to close a deal.
Your lender plays a crucial role in getting you to the closing table. And how soon they can do this is a reflection of their capacity to handle FHA Loans. This is particularly important if you have a deadline to meet. The longer it takes to close the loan, the more it could cost you, especially if renting your current home.
5. Choose Experienced FHA Lenders
Among FHA lenders, look for someone with relevant experience to your situation. An experienced FHA mortgage lender can make the process go faster. Some FHA-approved lenders participate in state-specific down payment assistance programs. Find out if your lenders are members of any or eligible.
Most importantly, FHA loan rates and requirements can differ significantly from one lender to the next, like other loans. To find the best deal, you’ve got to do your research and put in some work.