FHA Loans Explained: A Practical Guide for First-Time Homebuyers

Back in the day, buying a home was easy and was not too expensive. If you look at the latest statistics, 67% of the current generation does not own a house. This is because buying a house in this era costs a lot of money, and with the rising cost of living, getting one has become nearly impossible. But there are other ways to buy a house, and that is via a home loan. For some, learning about a home loan is overwhelming, and the robotic language takes ages to understand. This guide will take you through the steps to buy a home by sharing a list of essential documents required to get a home loan. When your documents are in order, it will show your level of interest, and banks will be more likely to offer you a loan.

Legal Papers & Proof of Your Identity

This is the easiest step. You will need to provide proof of identity by presenting a national ID card and a passport issued by the government. This proves that you are a legal citizen of the country. They will check your SSN (Social Security Number) and check your credit score. This step is important, so make sure that your ID card is not expired. Make multiple, clear copies of your ID card and passport because you will be asked to provide them for various steps and procedures.

Show How You Earn Money

After checking the credit score, loan providers want proof of income, which means they want to know where and how you earn money. They will ask you for the latest pay slips (usually up to 3 or 6 months), which will allow them to see how you manage your taxes as well. Some banks might ask you to show pay slips for 12 or 24 months. And if you own a business, you will need to provide additional proof by showing tax returns. It gives them an idea of how much your business earns monthly, quarterly, and yearly. You must be completely honest with the loan provider, as it allows them to make exceptions, if required. 

Check Latest Loan Options & Your Credit Score

As stated before, the loan providers first check your credit score to see whether you are eligible for the home loan or not. For example, paying your credit card bill on time means your credit score will be high, and vice versa. But if, for some reason, you have a low credit score, you can apply for FHA home loans. These loans are offered by the government to help people buy a home, and they require a smaller downpayment compared to the loans given by banks. This is the best option for low-income families.

Provide Proof of Your Assets

The loan providers need to know if you own any assets. This is important because they want to secure themselves in case you cannot pay your installments. Your assets can be any investment funds, savings accounts, or checking accounts. This will also allow them to see how you will pay for the down payment. Even if a family member or friend gives you money for the down payment, you have to get an official ‘gift letter’ to show to your bank that you did not get this money from any other bank but from a family member or a friend. If you have received any extra money from anywhere, you will have to explain it to the loan provider.