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 the past 2 years
• W-2 & 1099 Statements for the past 2 years
• Paycheck stubs for the 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 of cancelled rent checks
• Recent utility bills to supplement thin credit
• Bankruptcy & Discharge Papers if applicable
• 12-month 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

• Driver's License
• Social Security Card
• Any divorce, palimony, alimony, or child support papers
• Green Card or Work Permit, if applicable
• Any homeownership papers

Refinancing or Owning 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

The main difference between an FHA loan and a conventional home loan is that an FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower are 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, TransUnion, or Equifax. If your score is below the minimum standard, you may not qualify.

Your monthly costs should not exceed 29% of your gross monthly income for an FHA loan. Total housing costs, often lumped together, are referred to as PITI.

P = Principal

I = Interest

T = Taxes

I = Insurance

Examples:

Monthly Income x .29 = Maximum PITI
$3,000 x .29 = $870 Maximum PITI

Your total monthly costs, or debt-to-income (DTI), adding PITI and long-term debt like car loans or credit cards, should not exceed 41% of your gross monthly income.

Monthly Income x .41 = Maximum Total Monthly Costs
$3,000 x .41 = $1230
$1,230 total - $870 PITI = $360 Allowed for Monthly Long-Term Debt

FHA loan ratios are more lenient than a typical conventional loan.

Yes, generally a bankruptcy won't preclude a borrower from obtaining an 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.