What is a FHA Loan?
An FHA loan or Federal housing administration loan, was originally established in 1934 to provide adequate home financing with mortgage insurance to those that could not make a 10% or 20% down payment. FHA doesn’t actually make home loans but they ensure a loan through a lender. If the home buyer defaults and stops making their payments, the lender is paid from the FHA insurance fund.
A lot of people choose an FHA loan because of the low down payment option. FHA requires just a 3.5% down payment and is ideal for first-time homebuyers who are unable to make larger payments. This also is a great option for those that may not qualify for a conventional loan of at least 10% down. FHA also accepts payment assistance programs that can be added to the loan for additional down payment or closing costs assistance.
FHA Loans vs. Conventional Home Loans
The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict.It’s still important to have an established credit history but lower credit scores and minor credit problems may not prevent you from obtaining an FHA loan.
What Documents are Needed to Apply for a FHA Loan?
Your loan approval depends 100% on the documentation that you provide at the time of application. We will request the following documents:
- Complete Income Tax Returns for past 2-years
- W-2 & 1099 Statements for past 2-years
- Pay-Check Stubs for past 2-months
- Self-Employed Income Tax Returns and YTD Profit & Loss Statements for past 3-years for self-employed borrowers
- Complete bank statements for all accounts for past 3-months
- Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.
- Recent bills & statements indicating account numbers and minimum payments
- Landlord’s name, address, telephone number, or 12- months canceled rent checks
- Recent utility bills to supplement thin credit
- Bankruptcy & Discharge Papers if applicable
- 12-months canceled checks written by someone you co-signed for to get a mortgage, car, or credit card, this indicates that you are not the one making the payments.
- Drivers License
- Social Security Card
- Any Divorce, Palimony or Alimony or Child Support papers
- Green Card or Work Permit if applicable
- Any homeownership papers
Refinancing or Own Rental Property
- Note & Deed from any Current Loan
- Property Tax Bill
- Hazard Homeowners Insurance Policy
- A Payment Coupon for Current Mortgage
- Rental Agreements for a Multi-Unit Property
How big of a FHA Loan Can I afford?
Your monthly costs should not exceed 31% of your gross monthly income for a FHA Loan, However there are some conditions and exceptions to the rule depending on your credit history and the type of loan. Each mortgage payment will include the principal, any interest, taxes, and insurance. This is called PITI and it is lumped together with your monthly mortgage payment. Total housing costs often lumped together are referred to as PITI. In every town in the country, FHA caps it’s loan amount based on the area’s median home value. Dependind on where you are, you may be entitled to a larger loan amount if your financial situation can support it.
If I’ve Had a Bankruptcy in Recent Years, Can I Get an FHA Loan?
Yes, generally a bankruptcy won’t preclude a borrower from obtaining an FHA loan as long as they have established credit with a minimum of two credit accounts and have waited the two years since a chapter 7 bankruptcy or one year for chapter 13. Even if you are not within the certain time frames, it never hurts to ask, because there could be additional programs or options that help you buy sooner. Never hesitate to ask when you can obtain a home loan. You might be surprised.
If you’d like to apply for an FHA home loan or just have some questions please contact us today.