FHA Loans and Their Documentation Requirements

Document Driven FHA Loans

If you have considered applying for an FHA loan, then you should become familiar with the FHA requirements so that you know what to expect. There are plenty of good reasons to choose FHA over conventional, so whether you are a first time homebuyer, or you are wishing to refinance your current home loan, you can talk to a professional about getting approved for an FHA loan.

The FHA loan requirements make it clear, that your first step is in knowing how much you can afford when considering buying a home. For this, there is a specific calculation that compares your current gross income to your existing debts in order to provide a maximum loan amount that you can qualify for. The guidelines are such that it forces to consider what can fit into your budget rather than focusing on what the maximum is you can borrow. Whether you are purchasing a home, or refinancing your current home loan, your FHA loan will be built around having a reasonable debt to income ratio, so what you budget for is important.

The second step is getting qualified. In a sense, you will still have to qualify even for a refinance. An FHA loan is not necessarily based on credit score, but it is based on several factors. Pay history, job time, and income are all a part of what helps you to qualify. The FHA requirements want you to show that you have the ability to repay the loan. Your loan will be driven by the documentation that you can provide, such as w2’s, tax returns, insurance, and above all good pay history. Your rental history will be used as pay history when buying a home, and even utility bills will be considered as alternative credit if you have no credit.

FHA guidelines state that a loan can be done for someone who has had a chapter 7 bankruptcy. The FHA requirements state that a new loan can be done two years from the date of the discharge. Additionally, an FHA loan for the purpose of a refinance can be done to pay off a Chapter 13 bankruptcy. Again, their guidelines their guidelines are very specific. Not only does the bankruptcy have to be paid off, but the pay history must be perfect and must be given by the Bankruptcy Court Trustee.

Most anyone can apply for an FHA loan, and that includes investors or those who have rental properties. Rental income can be used as income, but the FHA requirements state that the individual needs to be able to prove that the rental income is stable. Rental properties or multi-family units can be considered as rental income, but rent from a property that is considered a second home for the borrower cannot be included in this. The documentation that FHA guidelines ask for, is the IRS schedule E from the 1040. From there, the underwriters have a specific calculation they work with to come to a determination.

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