FHA Loans: Drive Your Ambitions of Homeownership!
Small steps lead to big dreams.
What is an FHA Loan?
An FHA loan, insured by the Federal Housing Administration, is a mortgage option available for single family and multifamily homes. These loans are designed to enable banks to issue loans with lower risk, as the FHA guarantees against default. FHA loans cater to individuals who may not qualify for conventional mortgages, particularly first-time homebuyers. They offer advantages such as low minimum down payments, reasonable credit expectations, and flexible income requirements. If you’re interested in learning more about FHA loans and how they can benefit you, visit FHA Loan Requirements in 2024 for detailed information.
Documents Needed for FHA Loans
Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate information on:
Employment
- 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
Savings
- Complete bank statements for all accounts for past 3-months
- Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.
Credit
- 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.
Personal
- 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
FHA Versus 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.