Chicago FHA Building Approval

FHA Loans 101

Federal Housing Administration (FHA) loans are common among first-time home buyers and those who do not have a lot of money for a down payment, or have a less than stellar credit score. FHA loans can be used to buy 1 – 4 unit homes, including detached houses, condos, townhomes, mobile homes and other single-family residences.

The FHA is not actually lending money to borrowers, instead it insures the loans for other lenders. This makes it possible for higher risk borrowers to get loans because the lenders are protected from default. With an FHA-insured loan, many home buyers are able to obtain more affordable mortgages and may even have an easier time getting qualified.

Generally, the main benefits of a FHA-insured loan are lower down payment, competitive interest rates, and easier qualification than with a conventional loan. Currently, the minimum down payment amount for FHA loans is 3.5% of the purchase price. So, a buyer would only need to put $5,250 down on a $150,000 property.

In order to get an FHA loan, you need to use an FHA-approved lender. FHA-approved lenders include banks, mortgage brokers, credit unions and financial institutions. Just like with any loan, it is recommended you shop around for the best rates and fees offered by FHA-approved lenders. You can use the search engine on the Federal Housing Administration website to find FHA-approved lenders in the Chicago area.

In the case of purchasing a condo or townhome with an FHA loan, the condo building or townhome development also needs to be FHA-approved. If it is not, a spot approval is needed. A spot approval can be obtained if the building meets a list of criteria (Chicago Condos Online provides a checklist for you).

The FHA loan process begins with an application, which is prepared for presentation to investors. This step typically takes up to three weeks because a number of documents and verifications must be collected to proceed. An appraisal is done to ensure the property is worth what the investor is lending for it. Next, the loan request is submitted to the investor for underwriting and approval. If the underwriter determines an applicant’s financial and credit situation is acceptable and the loan meets FHA guidelines, an approval is issued. The loan will be suspended if other documents are needed or denied if FHA guidelines are not met. For approved loans, legal binding documents are drawn up, which include the Deed of Trust, a Promissory Note for the amount borrowed, and a HUD 1 itemized list of fees. After the loan documents are signed, notarized and verified, the investor funds the loan. Finally, the docs are taken to the county recorders office.

There are several different types of FHA loan programs that borrowers may qualify for. The most basic are fixed-rate loans and adjustable-rate loans. But other more specific programs include discounts for teachers and police officers. Talk with your agent about the best FHA loan option for you!