Purchasing a home with an FHA mortgage can be a nervous experience for most homebuyers, especially first-time buyers. Below we will outline some important steps of the FHA loan process for Memphis homebuyers. Please visit the loan program section of the website to learn more about FHA loan qualifying requirements. The FHA loan limit for most of Tennessee is set to $472,030 however, a few counties are even higher.
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FHA Mortgage Application, Applying & Pre-Qualification:
Buyers want to start the FHA pre-approval process about three months before purchasing a home. Pre-qualifying can mean several things depending on the lender or bank you talk to. Generally, it involves knowing the following key points – the location you want to purchase, the property type, mortgage type and down payment amount. From there a loan specialist can talk to you about financing options that fit your needs.
There are many mortgage programs available, so you should know your best options. The mortgage company will also ask if they can check your credit report. This credit profile report will alert the lender to any credit/financial problems. If you’ve experienced any financial hardships in the past, you should explain that to the lender so they can provide the best alternatives for you. Next, the lender will most likely ask you a few questions regarding other things about your life such as employment history, address history, bank savings, marital status, ownership of additional properties, and many other questions to help them determine your ability to repay the mortgage.
This is standard procedure in the mortgage process, so please don’t be alarmed. The entire process only takes about 15-20 minutes to complete.
The following are some additional questions the loan company might ask:
Are you a first-time home buyer?
A first time homeowner has not owned a home in the last three years, or is a recently divorced? Why is this important? Because there may be other programs that require a lower down payment, provide a lower interest rate, or even provide down payment and closing cost assistance to new homebuyers.
Are you a Military Vet?
Many Veterans in Tennessee qualify for 100% VA mortgage financing. In most cases, it is easier to qualify for a VA loan. VA loans don’t require monthly mortgage insurance costs like other government-backed programs like FHA and USDA. So, why not use this special benefit? Becoming pre-qualified is an important step in the mortgage process to enable you to get into the right house with the right terms and conditions. Furthermore, getting pre-qualified helps you strengthen your position when negotiating with the seller as they now know that they have a qualified borrower.
Make The Offer To Buy Home:
Now you have found the perfect property you want and you are ready to make an offer. You must consider what sales price to offer, terms, seller concessions, earnest money, option fee, as well as closing and possession dates.
If you are in a seller’s market, you will be able to negotiate very little. If you are in a buyer’s market, you will be able to get several concessions from the seller. It really just depends on the market you are located in. This is a process that can be best accomplished with the help of a competent and trusted Realtor. The Realtor is also very important because they should always have your best interests in mind when negotiating with the seller. This allows them to stay objective throughout the process even when you become emotionally involved.
Acceptance Of The Offer:
Acceptance occurs when all parties agree to the price and terms of the contract. At that time, the clock starts ticking to adhere to all details that are outlined in your transaction, home inspection time, appraisal time, etc. You should be sure that all changes are initialed, no matter how insignificant you feel the change is. Absolute agreement and clarity are the key to protecting your rights and expectations for your purchase.
This process is stipulated in your contract and should not be more than five days total from the time you submit the offer to the seller. It is important that this process moves along quickly. Once acceptance occurs, the next few weeks are filled with inspections, appraisals, and many other deadlines that you will need to meet to ensure a smooth closing.
Meeting Loan Deadlines- Below is a list of some of the things that will happen during this time period.
After all parties have agreed to the terms of the contract and the executed date is filled in, a copy of the contract and the earnest money must be delivered to the title company. The title company, a disinterested third party, must remain neutral throughout the transaction. They will carry out all the instructions of your contract and provide the title insurance.
The address of the title company chosen will be on your contract, so you can communicate freely with them. Generally, your real estate agent will contact the title company for all key factors and they will review your final figures before closing. A good real estate agent can review the plem settlement statement for you and make sure you have not been incorrectly charged.
Home Inspection Time:
You have the right to do inspections any time prior to closing. Many Memphis homebuyers choose to get the property inspected during the option period. In case there are problems found, the buyer can terminate the contract. The option period begins on the executed date of the contract and normally lasts from 7 to 21 days.
If you feel there is a major item that must be addressed after the general inspection is done, your options are:
- Terminate the contract within the option period.
- Renegotiate a lower sales price.
- Request the seller do the stated repairs.
- Split the cost of repairs with the seller.
Also, keep in mind that the lender may require certain repairs to be complete before closing. Especially safety-related items that may be required by FHA, VA or USDA. This is when a great Realtor comes in handy.
WDO (Termite) Inspection:
If you are getting a loan, a wood-destroying insect report may be required before closing. This report is filled out by a specially licensed inspector and is often done at the time of the general inspection to keep inspection costs down. This inspection report states if there is a current infestation, there has been infestation, there are conducive conditions (areas that might attract), or the property has been treated.
The home appraisal is required by the lender to ensure the property’s market value and to certify the property meets required standards. Two important areas to focus on are the appraiser’s value and the lender-required repairs. Although the appraisal belongs to the lender, you typically pay the cost as required by the lender. The law entitles you to a copy of the appraisal before closing.
After the underwriter has reviewed your file, they will approve and send it to the closing department. Loan approval is the full and final approval to get your property closed. Sometimes the loan approval is conditional and you must provide documented proof that either your previous home has closed or a receipt of a paid account. Either way, the loan approval moves you one step closer to owning your property. One major factor that lenders consider when approving your loan is your credit profile.
All repairs are generally done after the loan approval. Sometimes a seller might agree to do them early, but don’t expect this until you have been completely approved for the loan. Repairs include lender-required repairs that must be done prior to the funding of the loan. Lender required repairs take precedence over all repairs because the loan will not be approved unless they have been completed. Although the required repairs discussed are addressed in the contract, repairs that are needed after you are a homeowner should be a concern to you. Good real estate consultants should always recommend a residential contract to protect you in the coming year.
After repairs are done, it is often required to re-inspect the property. Oftentimes, the general inspector you originally hired will look over the work for a nominal charge. This re-inspection trip should not be skipped. Allow yourself enough time before closing for the re-inspection of items where repairs had been requested.
Before closing on your FHA loan you must obtain homeowners insurance. You will need to provide your insurance agent with the address, square footage, and age of the property. Some insurance companies ask for additional information that can be provided by your real estate agent. Your insurance will not go into effect until your loan has closed and been funded. Your insurance premium will be included in your closing costs, so you don’t need to pay for it upfront.
The amount of your insurance premium is determined by the type of coverage needed:
- Replacement versus actual cash value of items in your house
- Property location
- Replacement versus actual cash value of dwelling coverage
- Deductible amount
- Security system, deadbolts and smoke alarms
- Discounts may be given if you use the same insurer for your auto insurance
Please remember that flood and earthquake damage are not covered by a standard homeowner policy. You may need to buy a separate policy to cover those types of risks and the likelihood of occurrence in your area.
A survey will provide a graphic account of the property you are purchasing. It will show the structure fence line, boundary lines, encroachments, and easements of the property. The home seller(s) often have a copy of this so it can reused. If not, the cost can be negotiated just like all the other closing costs.
During these final few days you will need to finish up any last-minute details to ensure that you get the keys to your house on the day of closing. This is an exciting time, so try to relax and enjoy the process knowing that your new house is just around the corner. Below are a few last minute things that you will encounter.
Closing time is the date and time set-aside for you to come in and sign the paperwork. Your real estate agent will coordinate the time and date convenient for you and the title company. Funding occurs when all papers have been signed and all conditions have been met. Funding may occur on the day of the closing or on the next day. Careful planning will ensure that all expectations have been met. You will not receive the keys for the premises until the loan has been funded, so plan to close early when there are definite time constraints.
After funding, your real estate consultant will give you the keys to the property and you will officially own your new home. Now you just need to find some good friends to help you move in.
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