At Red Blue Realty, we know that qualifying for a loan is the first step toward owning a property for most potential buyers. And if you want to qualify for an FHA loan, there are steps regarding documentation and credit worthiness that must be addressed. Our experts have some advice to smooth out the steps in the qualification process.
First, be aware that FHA mortgage lenders will study two main elements about a borrower to approve a loan. These are:
-Ability to repay
-Willingness to repay
When a lender examines a borrower’s ability to repay a loan, they are usually basing this assessment on a borrower’s employment and income. While it’s true that lenders will prefer a borrower who has worked at the same location, or if self-employed, a borrower who has been in business for a two year minimum, in today’s real estate market, changing your field of employment is not an impossible strike against you.
Your repayment willingness is based on several different considerations: use of the property, and financial commitments and history. Concerning use, this means whether you’re planning to live in a property or if you are planning to rent it out. Concerning financial history and commitment, this decision is based upon both your credit report and history, and your rental payment or previous mortgage payment record.
There are no set rules to qualify for an FHA loan and every borrower is assessed as an individual. However, there are some givens for the approval process. For example, the loan processor always orders a copy of the borrower’s credit report, a property appraisal report, and title report. The processor then verifies your bank statements, including deposits and any mutual funds. Any credit issues will be discussed, such as collections, judgements, or late pays that appear on your credit record. You’ll also need to provide W-2′s, pay stubs, and tax returns if self-employed. Your loan approval may be received and processed more quickly if you can provide bank statements from the three months before your loan application.
At Red Blue Realty, we recommend that you ask for a copy of your credit report. This allows you to address and deal with any credit issues, or negative marks on your record. You can enhance your credit scores with low credit balances, timely bill payments, and by not over- applying for credit. Close accounts with a zero balance; as simply keeping these cards can affect credit. Reach out to lenders to address any credit history concerns.
If you have a credit score of 680 or above, you’ll be considered an A+ borrower; and you’lll receive the fastest loan approval and lowest interest rate.
If you have a score below 680 but above 620, underwriters may take longer to approve your loan but still evaluate you with an “A” rating. If your credit scores are lower than 620 you may not receive the best rate and terms available.
In order to qualify for an FHA loan, you must also provide an appraisal report on your property which will be based upon cost, neighborhood comparisons, or in the case of a rental property, income.
If you have any questions regarding the FHA loan qualification process, Red Blue Realty is here. Give us a call or drop us a line.