Here are six steps to choosing the best FHA lender.
Step 1. Check your credit score
To get an FHA loan, you need a credit score of at least 580 (some lenders will allow a lower credit score if you can make a larger down payment). If your credit score isn't high enough (or you don't have one at all), you can work on increasing your credit score before you start the loan application process.
Step 2. Determine the loan amount
Before choosing an FHA lender, figure out how much you can borrow. Lenders often require that your housing payment be no more than 28% of your gross monthly (pre-tax) income. Housing payments include mortgage principal and interest payments, homeowners insurance, property taxes, and homeowners association dues.
Keep in mind that just because your lender says you can afford a certain payment, it's up to you to decide whether your budget can comfortably accommodate it. Even if you are approved for a higher payment, you don't have to commit to it.
Then, use an online mortgage calculator to figure out how much you can borrow and figure out how much you'll end up paying, based on your income. The amount you can borrow will depend on your mortgage interest rate and how much property taxes, insurance, and HOA fees are in the area where you want to buy.
Step 3. Ask about pricing
Each FHA mortgage company sets its own FHA mortgage interest rates. Even a small difference in interest rates can lead to big savings.
Step 4. Choose a lender that offers your desired terms
Do you want a 15-year or 30-year mortgage? Make sure the FHA lender you're interested in offers the terms you're looking for.
Step 5. Find a lender with low closing costs.
When you sign a mortgage, you pay closing costs to complete the loan. Closing costs typically range from 2% to 6% of the loan amount. To save money, try to find a lender with low closing costs.
Step 6. Get pre-qualified or pre-approved
Getting pre-qualified or pre-approved for a mortgage from several lenders can help you get a personalized quote. Pre-qualification will give you a ballpark interest rate based on your financial situation and won't affect your credit score. Applying for pre-approval may lower your credit score slightly, but it will give you a more accurate rate quote.
It's worth your time to get pre-approved for a mortgage from at least two or three lenders, especially if the application is free.
Each lender must provide you with a Loan Estimate, which is a form that shows all the details of the loan being offered to you. This form allows you to easily compare offers. Apply within two weeks to minimize the impact on your credit score.
