Anyone who is in the market for a home mortgage loan should give serious consideration to a FHA loan. FHA is an acronym for Federal Housing Authority, a government agency within the United States Department of Housing and Urban Development. This type of loan is a home mortgage insured through the FHA. There are some minimum requirements that borrowers must meet in order to be approved for the loan.
FHA loans are unique in the sense that borrowers actually pay for mortgage insurance in the event that they default on the loan. Since the housing crisis resulted in a record number of foreclosures, FHA loans are now quite attractive. They provide lenders with a peace of mind that they won’t have to put a foreclosed property up for auction. This makes the loan much more attractive to lenders, who in turn can pass on competitive interest rates to consumers. FHA loans don’t have as many qualification requirements as other loans yet they still require a substantial amount of vetting before being granted.
FHA loans are commonly thought of as the easiest type of home loan to qualify for. The most flexible FHA loan requires less than a 5 percent down payment. Borrowers will need to demonstrate two straight years of consistent employment, ideally with the same employer. The last two years of income should have either increased or stayed the same. Candidates seeking an FHA loan will also need to produce a credit report that shows timely payments. Candidates with credit reports that show 2 or more payments beyond 30 days late will be penalized or disqualified from loan consideration. The same is true for those who have a credit score below 580. Borrowers who still have credit card debt must provide the most recent statements from these accounts. Applicants without credit must supply their most recent utility bills. Those who are currently renting must provide their landlord’s contact information.
Anyone who has endured a bankruptcy and is seeking a FHA loan must be two years removed from the bankruptcy at a minimum. The candidate also must have demonstrated good, responsible use of his credit since discharge. FHA loan borrowers who suffered through a foreclosure in the past must be 3 years removed. They will be disqualified if they’ve been over 30 days late on a credit account payment since the foreclosure.
Most of those who apply for a FHA loan are expected to earn enough income to pay back the loan in a reasonable amount of time. In general, the rule of thumb is that an applicant’s FHA loan mortgage payment should not be over one third of his gross income. Another important consideration is the candidate’s income to debt ratio. If he carries substantial debts, they might outweigh his salary, no matter how exorbitant it is.
FHA loan seekers must provide a diverse number of documents to prove their identity, income, credit-worthiness, savings and more. Loan seekers are required to provide tax returns from the past two years with all schedules along with the two most recent years’ W-2s, 1099s etc. Loan applicants will also have to provide pay stubs that prove his income over a full month’s period. Those who are self-employed must provide three years of tax returns as well as a year to date profit and loss statement. Documentation of savings must also be provided in the form of 3 months of complete bank statements. Borrowers must also provide statements from their 401k, retirement, money market stock and mutual fund accounts as well.