FHA Home Loan
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.
What is an FHA Loan?
The Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Families that may have otherwise been excluded from the housing market could now purchase a home.
FHA does not supply mortgage loans, it insures them. If a homebuyer defaults on their loan, the lender is compensated from the insurance fund.
Documents Needed for FHA Loans?
Your loan approval is completely dependent on the documentation that you provide during the application process. You will need to provide accurate information on:
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 contact information and/or 12- months cancelled rent checks
Recent utility bills to supplement credit, if necessary
Bankruptcy & Discharge Papers, if applicable
12-months cancelled checks written by a co-signer used to get a mortgage, car, or credit card, this demonstrates that you are not the one making the payments.
Social Security Card
Any Divorce, Palimony, Alimony or Child Support documents
Green Card or Work Permit, if applicable
Any homeownership papers
Refinancing or Own Rental Property
Note and 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
FHA vs. Conventional 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 3-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.
Bankruptcy and FHA Loans
Yes, generally a bankruptcy won’t preclude a borrower from obtaining a FHA Loan. Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.