If you are planning to buy a home with an FHA mortgage but aren’t sure whether you will be approved for the loan, you might find some help with our list if important FHA loan issues to consider as you plan and save for your mortgage.
How Much Time You’ve Spent Working
Your participating lender will review your employment history. Basically, they want to see how much time you have in your current capacity as a full-time employee earning salary, commission, or a combination of those.
If you are self-employed, how long have you been working in that capacity? That will be an important factor for the lender.
Your loan officer must review the last two years of your work history. Does that require you to have two years of experience with a single employer?
No. FHA loan rules do not require a borrower to have 24 months with the same company but if there are job changes in recent times that mean you have moved “up the ladder” so to speak, that may help your chances at loan approval.
Save More Than You Think You May Need
Not all FHA loan applicants have high FICO scores. That may not be a problem depending on the credit score range but you should anticipate needing a “compensating factor” if you are concerned about your FICO scores. Such factors can include a larger amount of cash reserves and/or a bigger down payment.
The borrower who can afford a bigger down payment based on those cash reserves may find that is an acceptable offset–depending on your circumstances, and the lender.
Is Your Credit Ready For The Loan?
It is a bad idea to apply for a mortgage when you aren’t ready. And not being ready can include applying while you are actively disputing a credit report problem, or if you have missed payments in your credit history within the 12 months leading up to the loan application.
It may be a bad idea to apply for a mortgage loan until you have a resolution for any dispute on your credit report. The same is true with the late payments issue. Your best results may come if you start the FHA home loan application process once you have a full 12 months of on-time payments.
Pre-Qualifying For The Loan
In general, it’s a smart idea to prequalify for your home loan when the time is right. You will have a better idea of what your loan will cost based on the price of the home, your selected loan term, property taxes, etc.
And don’t let the word “approval” fool you into thinking your credit check worries for the loan are over, as your loan officer can and likely will check your credit reports more than once during the loan process.
Do you need to save more money out-of-pocket on your home loan? If you need to finance certain closing costs, discuss your needs with the lender to see what you can finance and what you must pay in cash at closing time. Be sure to ask how financing things like the FHA Up Front Mortgage Insurance Premium or FHA UFMIP will affect your monthly mortgage payment.