FHA Mortgage Approval Process
Mortgage lenders and mortgage brokers manage the FHA mortgage approval process for property buyers. The FHA is a government agency within the US Department of Housing and Urban Development and the FHA offers insurance on mortgage loans. The insurance permits creditors to issue commissions and reduces lender risk.
FHA insurance provides a guarantee to the mortgage lender that the lender will not lose money on the home mortgage. HUD agrees to purchase any property associated with a mortgage loan. By way of example, if you take out an FHA mortgage and two years later you give up making the necessary payments, HUD will pay the mortgage off completely by buying your home from the lender in a foreclosure auction.
Because of the FHA insurance, mortgage lenders can issue borrowers who otherwise wouldn’t qualify for a home loan FHA loans. HUD permits borrowers with poor credit scores and reduced down payments. The minimum necessary credit score is 500, and the average down payment requirement is just 3.5% for borrowers with credit scores of at least 580. Those with lower scores may have to cover 10 percent .
Mortgage loans can be issued by certain mortgage lenders. The HUD website has a current list of FHA-approved mortgage lenders and brokers (see Resources), and only lenders and brokers that look on such a list can process FHA mortgage programs. If you’d like an FHA loan, the easiest way to initiate the course of action is to use the HUD website to find an FHA-approved lender in your area.
The very first step in the FHA mortgage approval process is called pre-approval. This measure includes the lender reviewing a preliminary program and telling you how much score. You will enter into a contract. The lender will verify that the purchase price is lower than the FHA mortgage limit in your town. The final step is called settlement or the loan closing, and this occurs in a title company’s office .
The FHA mortgage approval process can vary slightly depending on if your lender is a Direct Endorsement (DE) lender. DE creditors can process and approve FHA software without specific HUD approval, but non-DE creditors must submit the final program to HUD for approval before closing. The FHA mortgage approval process is therefore somewhat more easy, and a bit faster , with a DE lender.