FHA Loans

What is an FHA Loan?

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to overhaul the mortgage home financing system. The FHA does not make home loans nor does it set interest rates; instead, homeowners pay mortgage insurance. There is a one-time Up-Front Mortgage Insurance Premium [UFMIP] that is financed into the loan at purchase. Homeowners also pay monthly Mortgage Insurance. Should a homeowner default, the lender is paid from the insurance fund. Since a portion of the loan is being insured by the government, the risk of loss to lenders is lower, and they pass on this reduced risk in the form of lower down payment requirements, lower interest rates, and more flexible underwriting guidelines and requirements.

The result of this is that families who might otherwise be excluded from the conventional mortgage loan market can buy, refinance, or renovate their dream home.

The Federal Housing Administration (FHA) has a number of loan programs and options to help you become a homeowner or refinance (and even improve!) your home. As experts in FHA programs, rest assured that, from start to finish, we can put you into the best loan for which you're qualified in a process that’s as smooth and efficient as possible.

Benefits of an FHA loan:

  • Creates homebuying and refinancing opportunities for those who might not qualify for a conventional loan
  • Credit scores as low as 560
  • Down payments as low as 3.5% down (ideal for homebuyers who are unable to make larger down payments)
  • Income from someone who will not live in the house can be used to help qualify
  • Fixed rate, adjustable rate, and high balance loan options
  • Can be used for single family and multi-family homes
  • $100 down payment for police officers, teachers, and paramedics with the Good Neighbor and Next Door programs
  • Might be eligible for reduced wait times for bankruptcy and foreclosure

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If I've had a Bankruptcy, Foreclosure, or Short Sale in Recent years, can I get an FHA Loan?

Generally, a bankruptcy won’t preclude you from obtaining an FHA loan. Ideally, you should have re-established credit with a minimum of two credit accounts (e.g., a car loan or credit card, each account open for at least six months). A Chapter 7 bankruptcy needs to have been discharged at least two years before applying for an FHA loan. Chapter 13 bankruptcies require documenting a minimum of one year of repayment (no late payments to the Court), and you must obtain permission from the Bankruptcy Court). Also, you should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions might be made if you suffered through extenuating circumstances, such as surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.

If you lost a home to foreclosure, you will need to wait at least three years from the date the foreclosure was completed before applying for an FHA loan. An exception to this waiting period is possible if you can document some extenuating circumstances.

If you were behind on your mortgage and, rather than go through the foreclosure process, sold your home for less than it was worth (a short sale), the waiting period for applying for an FHA loan is the same as for a foreclosure - three years.

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What Documents are Needed to Apply for an FHA Loan?

When a mortgage professional begins your application, you will be given a list of documents needed to continue the process. In general, you should gather and be prepared to show the following documentation:

Employment

  • Complete income tax returns for past two years
  • W-2 & 1099 statements for past two years
  • Paystubs for the last 30 days
  • If self-employed: income tax returns and YTD Profit & Loss Statements for past three years
  • For self-employed who owns a business: last three years' personal AND BUSINESS income tax returns, business YTD Profit & Loss Statements for the past three years

Savings

  • Complete bank statements for all accounts for the past two months
  • Recent account statements for retirement, 401k, mutual funds, money market, stocks, etc.

Credit

  • If renting, your landlord's name, address, telephone number, or copies of the last 12 months of cancelled rent checks
  • Recent utility bills to supplement thin credit
  • Bankruptcy & Discharge Papers, if applicable
  • If applicant co-signed one someone else's mortgage, car loan, or credit card, 12 months of cancelled checks drawn on an account of the other person, to document that applicant is not the one making the payments for that co-signed account

Personal

  • Driver's License
  • Social Security Card
  • Any Divorce, Palimony/Alimony, and/or Child Support papers
  • Green Card or Work Permit, if applicable
  • Any homeownership papers

Refinancing or Own Rental Property

  • Note from current loan (for each property)
  • Property tax bill (for each property)
  • Hazard/Homeowners insurance policy (for each property)
  • Current mortgage statement for each property)
  • Rental Agreements for a Multi-Unit Property (for each property)

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How Big an FHA Loan Can I Afford?

Just like regular, conventional loans, the loan amount for which a borrower might qualify is largely dependent on a borrower's debt-to-income ratios (DTI). Typically, FHA allows for higher DTI ratios than a conventional loan.

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FHA 203(k) Renovation Loans

An FHA 203(k) loan allows homebuyers and homeowners to roll the cost of renovations into one new loan. This program can also be used to buy a new home that needs work (a little or a lot!). Click here for more information on the FHA 203(k) programs. 

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