FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn’t issue loans or set interest rates, it just guarantees against default.
FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.
FHA does not make home loans, it insures a loan; should a home buyer default, the lender is paid from the insurance fund.
- Buy a house with as little as 3.5% down.
- Ideal for the first-time home buyers unable to make larger down payments.
- The right mortgage solution for those who may not qualify for a conventional loan.
- Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.
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. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 2-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.
What Documents Are Required to Apply for a FHA Loan?
Your loan approval depends heavily on the documentation that you provide at the time of application. Depending on your employment, credit and asset situation, the following documentation would likely be requested.
- Complete Income Tax Returns for past 2-years
- W-2 & 1099 Statements for past 2-years
- Pay-Check Stubs for past 2-months
- For Self-Employed borrowers – Income Tax Returns and Year-To-Date Profit & Loss Statements for past 2-years
- 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 cancelled rent checks
- Recent utility bills to supplement thin credit
- Bankruptcy & Discharge Papers if applicable
- 12-months cancelled 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
Refinancing or Own Rental Property
- Property Tax Bill
- Homeowners Insurance Policy
- A Payment Coupon for Current Mortgage
- Rental Agreements for a Multi-Unit Property