The first thing you learn as a new FHA mortgage borrower is that you can't apply for an FHA loan at just any bank. The FHA must approve lenders to offer FHA loans, FHA refinancing and homeowner bailout programs.
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The FHA and the Government Crackdown on Loan Fraud
When U.S. Treasury Secretary Timothy Geithner announced a crackdown on fraudulent lending practices, the result was more than 2,000 open mortgage fraud cases. That's a 400% increase from pre-housing crisis figures from 2004. In they eyes of some, such figures indicate buying a new home is full of peril. But do those applying for FHA mortgages, refinancing or homeowner relief have the same worries as someone looking for a conventional home loan?The first thing you learn as a new FHA mortgage borrower is that you can't apply for an FHA loan at just any bank. The FHA must approve lenders to offer FHA loans, FHA refinancing and homeowner bailout programs. This raises the bar, so to speak, for the kind of financial institution that you could do business with.
While a bank must meet standards to offer FHA home loans, the government recognizes that it can't police the entire banking industry. That's why the Department of Housing and Urban Development offers advice for those who want an FHA loan. When it comes to choosing a lender, you should always ask important questions even if the bank is an FHA-approved lender.
According to the FHA's official website, it's very important to shop around for a loan. The bank that offers the lowest interest rates may not always be the best fit for you.
QUESTIONS TO ASK ABOUT YOUR FHA-APPROVED LENDER
One of the first things you should ask is whether the bank is FHA-approved to issue loans in your area. A financial institution may be authorized to offer FHA loans in some areas, but not all. This is especially important if you are applying for pre-approval or pre-qualification online. Don't find out after you've invested your time that the lender can't issue an FHA mortgage for your zip code. The bank may offer you an alternative, but if you specifically seek an FHA loan, ask first.
What's your chosen lender's reputation in your area? If you have a real estate agent or are working with one on a specific property, ask the agent about the bank in question. You might learn a lot by asking a real estate pro--especially if there are banks in your zip code with bad reputations in the local industry.
Did you know you can use local publications including the newspaper and online classified ad sections to compare banks? Shop around for interest rates, and try to find the most competitive rate you can before you approach a particular FHA lender.
When you approach a bank, ask the loan officer to give you specific details about the points and origination fees charged for your potential FHA mortgage. Does the lender charge more than other banks? If so, try looking elsewhere.
The Government's crackdown on loan fraud focuses on a variety of lenders. FHA loans are safer than conventional loans because of the requirements the government holds lenders to--but don't assume that because the bank got an FHA-approved rating in the past that they are still in compliance. While there are plenty of reputable, honest lenders on the market, it often takes time for the government to catch up with those who stop complying with fair lending regulations.
Always ask the important questions before signing on the dotted line. FHA officials warn borrowers not to sign blank documents, and to understand that the FHA does not regulate the interest rate or discount points on FHA loans. You will have to negotiate the loan with your lender and come to an agreement on closing costs and other issues. Don't believe a lender who tells you interest rates or closing costs are fixed by the FHA. When in doubt, don't sign. This is true for all lending products, whether you're looking for FHA refinance, homeowner relief, or are a first time homebuyer looking for a new FHA home loan.
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