In this guide, I will walk you through how to apply for an FHA loan in Ohio. We’ll go over the 14 steps — from collecting your paperwork to getting approved.
Let’s explore the details step-by-step.
Step 1: Collect Your Documentation
Collecting the documentation you need to apply for your FHA loan is time-consuming. Some documents are readily available, while others take unexpectedly more time to assemble.
You may not own original copies of some of the required documents, so it’s advisable to begin this process well before shopping for properties.
Paper copies of an original birth certificate, for example, can take weeks to be processed and arrive through the mail.
You’ll need a number of original documents and paperwork, including:
Basic Documents:
- State- or government-issued identification card, driver’s license, or a passport
- Your original birth certificate and Social Security card
- Recent (past two months) utility bills listing your name and correct address
- Employment pay stubs or employer 1099 statements
More Detailed Documents:
- Tax returns for the last two years
- Bank statements for the past 24 months
- Copy of rental or mortgage statements for the last few months
- Bank statements for the last six months. Two are typically required for FHA loans, but local lenders might request additional months.
- Credit card statements for the prior two months
- Statements and billing for other liens or loans, such as auto loans
- Contact information for your employers, present and other recent employers
- Copies of checking and savings account statements
- Documents showing your equity in any investments
- Gift letters when you’re using cash gifts as a down payment or for closing costs
Self-Employed Documents:
- Lenders will require detailed business paperwork, including detailed accounting for the firm for a minimum of the last two years.
- Your business Debt Service Coverage Ratio (DSCR) or the Debt-to-Asset Ratio will also be examined to qualify for an FHA loan and any supplemental down payment or closing cost assistance.
Step 2: Assess Your Buying Power
Assessing your purchasing power is essential before you hit the road to start looking at properties. This is particularly important for the first-time homebuyer.
You’ll need to determine the required down payment — the amount of upfront cash you’ll need to purchase a home.
Figure a down of 10%, although as a first-time buyer you’ll probably be able to put down only 2-5%, depending on your creditworthiness and the amount of assistance you receive.
It’s important to know that not all sellers, particularly those regulated by homeowner’s associations, allow new buyers to use FHA loans.
Make a Wish List
- Requirements: Determine the absolute basics you need from your new home. Consider the number of bedrooms, baths, square footage, and amenities such as a multi-car garage, air conditioning, or a single-story house, condo, or multi-family unit of up to four units. Prospective housing should allow FHA-insured mortgages.
- Above the Basics: Make a list of the things you’d like to see, but can live without – or can be added by you at a later date. A covered patio or deck might be on this list.
- Dream features: List the ideal features that you’d love to have. You may discover a house that has this feature.
These formal lists can assist you in mixing and matching things on your wish list to help you make decisions on properties when you’re visiting open houses and touring homes.
Find Your FICO Score
- Importance: Your FICO score is a critical factor in obtaining an FHA loan and any supplemental buying assistance. The score also determines the amount you’ll need to put down on the home you buy. FHA mandates a minimum score of 500 to apply for a loan. A 580 score gives you flexibility on your down, but participating lenders typically require scores in the mid-to-upper 600s to receive a loan.
- Amount of Credit: Lenders look to see how much credit you have available and how much you’ve used. A debt-to-income ratio of 43% or lower is a typical demand, but this is flexible when you have a high FICO score.
- Credit Dings: Late payments and debt charge-offs are major problems when applying for FHA loans, although an experienced loan broker can help you remediate small dings.
- New Credit: Don’t apply for any new credit for at least two years before you plan to buy. Avoid hard credit inquiries that may signal you’re having financial problems.
- Monitoring: Pick up your free annual credit report from major credit reporting agencies. Look for any errors and take immediate action to correct them.
Consult with Professionals
- Lender’s Representative: A mortgage broker or lender can make recommendations to improve your financial profile so it’s more attractive to lenders.
- Realtors: An experienced real estate agent with finance expertise is also able to suggest actions to make your documentation file solid.
Research Homebuyer Help
- Grants: This cash can be used to pay Ohio closing costs or it can apply to the down payment. It does not need to be repaid by the buyer.
- Assistance: Some local, state, and federal agencies provide cash for the down payment, reduced interest rates on the loan, or cash for closing costs. There are also bad credit first-time home buyer programs in Ohio. All of them have specific restrictions and may or may not need to be repaid after meeting the terms of the individual grantor.
- Cash Gifts: FHA allows buyers to use cash gifts for the down payment and the closing costs. These must be gifts without any expectation of repayment.
- Loans: Some assistance comes in the form of another loan. These are always placed in a secondary position behind your FHA loan. FHA also needs to approve these before you can close escrow by using the assistance.
Step 3: Preliminary Home Shopping
Now it’s time to look more thoroughly into the houses you can afford and want to buy.
Price Points
- Sit down and set a realistic monthly budget that doesn’t strain your financial resources.
- Determine the property price that allows you to stay within that budget.
- When you’re working with a loan broker or real estate agent, they have the tools to help you do this.
Location
- Make a physical map of the neighborhoods for your shopping tours.
- Note the area medical facilities, schools, distance from your employment, and transportation.
- Watch for any potential hazards or issues that would make the home less desirable.
Condition
- Determine the amount of repairs or rehab you can and want to do.
- Set an estimated budget for that.
Wish List Matching
- Complete your purchasing power analysis and your location shopping before attempting to wish list match.
- Rank the items on your list in importance. Compare this list with the homes you’ve previewed in your preliminary property search. Your wish list may need an adjustment to be practical.
Find a Realtor
- Locate a reliable agent with access to the Multiple Listing Service (MLS) that lists available properties currently on the market.
- Select a Realtor who knows the neighborhoods you are interested in and has a resume of closing sales in those areas.
Caveats for FHA Loans
- The loans have a cap (set annually) on property prices.
- The cap varies from county to county.
- The property type influences the cap price.
- Single-family residences and properties up to four units qualify.
Step 4: Create a Financial Portfolio
Update your monthly statements so you have accurate copies of the prior two months in your portfolio.
File your documents according to topic, such as:
- personal identification
- banking
- assets
- credit
- employment
This speeds up the pre-approval process and means you only need to update your documents during the final lender underwriting review.
Step 5: Shop FHA-Approved Lenders
Not all Ohio lenders offer an FHA loan, so you’ll need to shop around. FHA lenders offer different lending terms and conditions. It’s important to take time to shop your local lenders.
Many local lenders have more rigorous financial vetting and higher required FICO scores compared with FHA requirements.
Step 6: Shop for Assistance
First-time homebuyer assistance programs in Ohio are avenues for you to supplement your down payment and pay part or all of your closing costs.
Most often, to qualify as a first-time homebuyer, you must not have owned a primary residence in the past three years. Some programs, however, are not limited to first-time homebuyers.
Each program has different qualifying requirements, rules for forgiveness, location restrictions, and, most importantly, rules that the property must be your primary residence for a set number of years.
Grants
- Housing Choice Voucher (HCV) Homeownership Program
- Grants for Grads
- Employer-Sponsored Loan Programs
- Good Neighbor Next Door (GNND)
- Cuyahoga County Department of Development Down Payment Assistance Program
Other assistance programs
- Your Choice! Down Payment Assistance by Ohio Housing Finance Agency (OHFA)
- The Columbus American Dream Downpayment Initiative (ADDI) Program
- Communities First/The Port of Greater Cincinnati Development Authority
- Believe Mortgage/Cuyahoga County Down Payment Assistance (DPA) Program
- Ohio Housing Finance Agency (OHFA) Down Payment Assistance
If you’re working with a lending professional, they keep abreast of new assistance opportunities and can quickly notify about the availability of new funds and programs.
When working alone, you’ll need to do online research to discover these new offerings and contact the agency or financial institution to determine the application process.
Step 7: Complete FHA Preliminary Loan Applications and Obtain Pre-Approval
The FHA loan application in Ohio allows you to receive pre-approval from the cooperating local lender.
This means you have a formal endorsement from your lender that you meet the requirements for an FHA loan in Ohio.
This approval letter can be a persuasive tool to make your offer stand out from others. It also gives you the assurance that you can afford the property you’ve selected.
Some important facts about pre-approvals include:
- Most pre-approvals are valid for only 60 to 90 days from the date on the letter.
- Your letter will list your maximum qualifying amount.
Step 8: Find a Home
It’s now time to look for a property to buy. You can do this search on your own or contract a local real estate agent to assist you.
Be sure to bring the following on your home tours:
- Your target neighborhood map
- Map of areas and properties required under any lender restrictions
- Maps, or a list of neighborhoods, required or restricted by grants or assistance
- Your wish list
- Checklist of grant and assistance buying requirements
Step 9: Make an Offer on a Home
The process of buying a house in Ohio with an FHA-insured loan typically involves a licensed real estate agent who writes a sales offer and presents it to the seller.
Your stacked supplemental loan or assistance, however, may require you to use an agent authorized by them and submit it by using approved forms or an online platform.
Your written offer and sales contract must meet all the Federal Housing Administration (FHA) requirements to have your deal funded.
Step 10: Make a Formal FHA Loan Application
Once your offer has been accepted, you’ll formally apply for your FHA-backed loan by using a local lender. This is the time you’ll need to update your financial portfolio.
The application requires you to disclose your personal and financial information, employer and income verification, make statements about your assets and debts, and agree to obtain a formal credit report updated to the day of your application.
You’ll also need to submit information about the property, including a written statement agreeing you will be the owner and the house will be your primary residence.
The local lender will then require you to also meet their specific requirements for the loan.
These typically demand higher credit scores, and sometimes higher levels of income and lower debt compared with the FHA guidelines.
When you’ve received lender pre-approval, the local vetting is simply a matter of updating the records you have on file from the earlier review.
Step 11: Apply for Stacked Loan Assistance
Using FHA down payment assistance programs in Ohio in conjunction with your FHA loan requires paying attention to details, and moving quickly when the programs ask for additional documentation.
Most assistance has set timetables for applying, consideration and closing, and these may not correspond with your FHA-backed loan.
The final responsibility to make sure these assistance programs communicate with one another rests with you. You’ll need to do follow-up during the sales and escrow process to ensure everything stays on schedule.
Frontloading the information and requirements from your supplemental programs with your Realtor, lenders, and escrow officer can make this step run smoothly.
Step 12: Obtain Property Appraisals
A formal loan application doesn’t mean the application process is over. You still need to provide additional information about the property.
FHA Requirements
- An FHA-approved home appraiser will visit the property to determine if it meets the agency standards for safety, security, and soundness.
- Any deficiencies will need to be repaired before the loan will be funded.
- You can apply for a 203(k) renovation loan to close at the same time as your mortgage to make the necessary repairs when the current owner refuses to do any fixing.
Stacked Appraisals
- The sources for stacked financial assistance may require a secondary appraisal.
Step 13: Arrange for Home Inspections
Besides an appraisal, there is also an inspection.
The mandatory FHA appraisal incorporates an inspection that reviews the property for basic health, structural, and safety standards.
If you want additional inspections done, you can hire a general inspector or professional who specializes in examining specific home features such as roofing, foundations, or plumbing.
These will be at your expense.
Step 14: Complete Loan, Grant, and Assistance Requirements
Every grant, loan, and assistance program has unique requirements, and you’ll need to match those to qualify for any help with your down payment or closing costs.
Loose Ends
The lender’s underwriter may have a few specific questions about your loan application, or the supplemental assistance programs may need you to update financial documentation.
Calendar Future Events
FHA MPI
In addition to your down payment and closing costs, FHA requires loan holders to pay mortgage insurance as part of the closing costs, and also a monthly fee. This is done as part of the escrow closing process.
This Mortgage Protection Insurance (MPI) is different from Private Mortgage Insurance (PMI), and must be paid for the life of the loan if you put less than 10% down to buy the property.
Other Requirements
The assistance you receive, in addition to your FHA loan, may come with additional strings. These may include annual reporting to the agency issuing the grant or secondary loan.
Failure to meet these requirements may end up putting you on the hook to repay the assistance.
Bottom Line
I’ve covered the 14 steps involved in applying and receiving an FHA-backed home loan in detail. Note that some steps may overlap or happen simultaneously.
It’s important to continue to stay up to date about the real estate market listings because your first home choice may be sold before you have a chance to make an offer.
Homeowners typically want to sell a home quickly.
One way to have the advantage over other potential buyers is to come to the sale with your written offer and a document showing you have preliminary loan approval.
Getting your financial portfolio organized and learning how to get pre-approved for a home loan allows you to move quickly when you find the perfect home and want to apply for a loan.
Get pre-approved for a home loan now without lowering your credit score with a hard inquiry.
