Federal Housing Administration loans are the easiest to qualify for and the most flexible on the market! Great pains have been taken by the agency to keep them this way. With special programs to meet individual needs and offices set up just to counsel potential homeowners, it is nearly impossible to go wrong with this type of loan. Here we will discover what the FHA requirements are in simple terms to keep the process as uncomplicated as possible for you!
Basic Guide to Financing
To begin assessing your eligibility for a federal loan, we will look at the most basic and the most essential requirements first.
You must have two years of steady employment under your belt, preferably with the same employer. This sends a message that you are financially stable and will be capable of meeting the challenge of homeownership. Your income in this time period should be steady or on the rise, indicating the ability to take on new expense.
On your credit history for the past two years, there should be no more than two payments late by thirty days. The minimum qualifying credit score is 520, although the agency sometimes considers those with no score through insufficient history if they have other evidence of financial effectiveness.
Any bankruptcies must have occurred previous to your two-year period and you have to show good credit performance from the time of discharge to the present. The same goes for foreclosures, but they must have occurred at least three years back from the present date.
To qualify for financing, your projected mortgage payment should be right around thirty percent of your gross monthly income, calculated before taxes.
If you can say yes to the majority of these stipulations, it is highly likely that you will meet FHA requirements.
Detailed FHA Requirements
There is nothing more imperative to your qualification process than documentation! Therefore, the very first item on your to-do list is to gather and organize the following paperwork, all of which should be the most recent: two years complete tax returns, with all schedules; two years W-2’s, 1099’s, etc.; one month’s worth of pay stubs; For the Self-Employed, three years tax returns and YTD Profit and Loss Statement; three months complete bank statements for all accounts; statements from retirement, 401k, mutual funds, money market, stocks, etc.; bill statements with minimum payments and account numbers; contact information for your landlord or one year of cancelled rent checks; If you have No Credit, copies of utility bills; complete copy of any Bankruptcy and Discharge Papers; copy of driver’s license and social security card; any pertinent marital and/or work information; and complete information for any properties/assets you own.
Now that you have identified yourself in print, the approved loan officer will assess how much of your income will be spent on housing and what the increase will be from your current expenditure. You may spend a maximum of 35% of your monthly income on the new mortgage payment, but in order to do that the agency must have sufficient evidence that you can manage this financial stretch. If the overall increase from your current housing expense is small, this will work in your favor.
To help keep these loans affordable to the majority of applicants, FHA requirements place limits on closing costs. Some of these fees may be paid by the financer/seller of the home and not the purchaser. In addition, down payments may be received as a “gift” (not intended to be paid back) from a relative or non-profit organization.
The most time-consuming part of qualification is generally the processing of the loan. This is when your file is prepared for presentation to the investors. All documentation must be reviewed and verified to ensure that the information is correct and all possible issues have been solved with the homeowner. In this process, you will receive a federal case number, your employment information will be confirmed, forms will be sent to your banking institutions to validate deposit information, and a full fractal credit report may be ordered at this time. Escrow, which is an independent third party who acts as an accountant for the transaction, will crunch numbers and write up the figures. The title of the home will be insured and an appraisal will be ordered and carried out by an agency-approved appraiser.
Whew! Once all of this information is assembled, organized and accepted by the Federal Housing Administration, your loan may be closed and you can move in to the home of your choice! Thankfully most of the work is performed by various government offices. They all work in synchronization to make FHA requirements the easiest, least expensive, most beneficial mortgage option for you and your family. If you can claim a good track record and adequate income, they will work around almost any obstacle to make the dream of homeownership a reality for you.