FHA Loan Application Process: Not Much Different from Conventional

Our readers frequently have questions about the FHA loan application process. Apparently it’s a popular subject. First-time home buyers, in particular, seem to think that the FHA application process is vastly different from conventional.

In reality, the steps you would to through when applying for a Federal Housing Administration-insured home loan are very similar to those required for a conventional mortgage. Here’s how the process usually works.

The FHA Loan Application Form

The first official step in the FHA loan application process is to complete a Uniform Residential Loan Application, or URLA for short. (There are some research and budgeting steps to take before you reach this point, but they’re the subject of another article).

The URLA is the standard application form used for all types of loans, including both FHA and conventional mortgage products. The form number is Fannie Mae 1003, if you’re curious.

Click here to view a sample URLA

If you view the sample form above, you’ll get an idea of what kind of information lenders need during the FHA loan application process. For example, the URLA document asks for the following information:

  • Type of mortgage loan you’re using (FHA, VA or conventional)
  • Employment information for the last couple of years
  • Monthly income and housing expense information
  • Assets and liabilities
  • Details of the transaction including the purchase price

Once you’ve submitted the standard loan application, the FHA-approved mortgage lender will request additional documents as well. This usually includes bank statements, tax records, a letter from your employer, and other documents relating to your financial situation.

The lender wants to know how much money you earn, how stable your income is, and how much recurring debt you currently have. They use this information during the FHA application process to determine whether or not you’re an acceptable risk — and whether or not they’re willing to lend you money.

Additional Required Documents

There are some additional documents you might have to complete during the FHA loan application process. These documents are required by the Department of Housing and Urban Development (HUD) and are specific to the FHA program.

For instance, borrowers who apply for a loan under this program must complete and sign HUD form 92900-A, which is an addendum to the URLA mentioned above. But aside from these minor variations, the FHA application process is nearly identical to a conventional mortgage loan (one that is not insured by the Federal Housing Administration).

Credit Checks and Due Diligence

When you apply for an FHA loan, the lender will also review your credit reports and scores to see how you’ve borrowed and repaid money in the past. That’s exactly what these documents show.

Your credit reports, for example, contain information about all of the loans and credit lines you have taken out in the past. From this, the lender can get a feel for how you have managed your debts in the past. And that’s obviously something they want to know during the FHA loan application process.

Your credit scores are three-digit numbers based on information contained within your credit reports. This number gives the lender some idea of how risky or “safe” you are, as a borrower.

Generally speaking, borrowers with higher scores are less likely to default on the mortgage loans. So lenders are more willing to approve them for financing, and also tend to offer them better interest rates.

In contrast, borrowers with lower scores are viewed as a higher risk. So they might have a harder time getting approved, and could be charged higher interest rates as well.

Risk Analysis Is Part of the Application Process

Credit checks and other forms of due diligence are a key part of the FHA loan application process. It’s all about risk analysis. The lender wants to know how much risk is involved with a particular loan. So they use the application process and related documents to perform due diligence and underwriting.

If all goes well during the initial FHA application process, the borrower can move forward to the next steps in the process. The mortgage lender will then have the home appraised to determine its market value, and the loan will move into the underwriting stage. (But those are subsequent steps that are discussed elsewhere on our website.)

This gives you some idea of what happens during the FHA loan process. If you would like to learn more about the steps mentioned above, refer to our Learning Center.