Before you opt for an FHA lender and sign the papers, check out Sean Z’s guide to choosing the right one for you!
An FHA loan is a loan issued by the Federal Housing Administration, an organization that enables lenders to offer very competitive interest rates on their loans. For you, the borrower, it works just like any other mortgage, except FHA loans charge upfront and monthly insurance premium.
Before you opt for an FHA lender and sign the papers, check out Sean Z’s 5-step guide to choosing the right one for you!
1. Consider Your Credit Score
FHA generally looks for borrowers with a credit score of around 500 – at least. And in some cases, the lenders themselves may look for an even higher score, so definitely consider this when looking for lenders.
Additionally, FHAs generally want a debt-to-income ratio of around 50%, but lenders can have more strict rules when it comes to it. Using these criteria can help you navigate through the entire sea of potential lenders and find those whose criteria you can meet.
2. Compare Multiple Lenders
Lenders don’t just have different criteria for giving out loans; they can also have greatly different FHA mortgage rates. So it’s a good idea to take your list of potential lenders and compare their rates to see the better deal.
Lenders price their loans on the current market conditions and can add interest rates to cover their operational costs and turn a profit. But since some lenders have higher costs than others, the rates themselves can differ greatly.
3. Consider the Lender Fees
There is a difference between the FHA mortgage insurance premiums and the lender fee. The premiums are the same regardless of the lender you choose, thanks to the FHA, but the fees tell a different story.
Lender A could have very different fees than Lender B, so when you’re comparing lenders, check out what their fees total to in the loan estimate to see how much you’ll be charged in the end.
4. Compare the Annual Percentage Rates
Lenders make their money by charging you fees and adding their profit to the interest rate you pay. After you check the bank’s fees, take a look at their APR? Sometimes, banks will not add anything to the interest rate and go with the money they get from the fees, but not all do so.
5. Consider Other Criteria You Need
You may have personal requirements for finding the right lender, such as being able to carry out the process online. Needless to say, not all lenders can accommodate the same sort of requirements, so factor them into your research!