How to Qualify for an FHA Mortgage
Posted 8 April 2011 4:36 AM by Anonymous
If you are considering buying a home for the first time, an FHA (Federal Housing Administration) loan provides many advantages as compared to a conforming loan (loan guaranteed by Fannie Mae or Freddie Mac).
Here are the primary advantages of an FHA mortgage
The FHA provides mortgage insurance for buyers without huge sums to use for initial down payments. FHA insured mortgages can be financed with as little as 3.5% down. While the FHA allows home-buyers to purchase homes with little money down, the loans aren’t given out to just anybody. If you happen to be in the market for a home and are looking to qualify for an FHA loan, you’ll need to have the following:
- A steady employment history. This means having been with the same employer for at least two years. Staying with the same employer shows stability, which is exactly why it’s a criterion for FHA backed loans.
- Your income over the last two years must have stayed the same or improved. Because the maximum amount of an FHA backed loans is based on your income, you must document that your wages are steady or rising.
- FHA loans recommend a good credit score of 620 or better, which generally means that your credit for the past two years must have less than two thirty day late payments and a solid credit history.
- If you have an unfortunate bankruptcy on your record, it must be two years old, and you must have good credit for the last two years.
- If you’ve had a foreclosure in the past, it must be at least three years old, and your credit for the past three years must be solid.
- 30% Up Front Ratio: The mortgage payment that you qualify for must be approximately 30 percent or less of your total monthly gross income. For example, if you earn $50,000 per year ($4,166 per month), your mortgage could be at most approximately $1,250.
- State tax liens must be paid by the time you apply for a loan. If you have a federal lien, you must be able to show that you’ll be able to pay the tax lien payment and the mortgage payment.
If you meet these criteria, chances are you’ll be able to qualify for an FHA backed loan. The next step is to call Embrace Home Loans
. If you contact and apply with more than one home mortgage lender several points are deducted from your credit score.
It’s very important to begin to gather the following documents regarding your income, employment, savings, and credit. Here’s a list of the documents you’ll need to complete the loan process:
- Complete tax returns from the last two years
- W-2 and 1099 forms from the last two years
- Pay stubs covering at least the most recent month
- Self-employed borrowers will want three years of tax returns and a profit and loss statement covering the year to date
- Bank statements covering the most recent three months
- The newest statement available from any investments: mutual funds, 401(k), retirement accounts, money market accounts, etc.
- Recent bill statements indicating account numbers
- Name, address, and contact information for your current landlord
- If you have no credit, you’ll need recent utility bills
- If you’ve had a bankruptcy, you’ll need a copy of the complete discharge paperwork
- Copies of drivers license and social security card
- If you’re divorced, you’ll need copies of divorce papers and papers related to alimony
Additionally, you may have to provide other documents on a case by case basis. Embrace Home Loans
will be available to answer any questions about the documentation process.
So, if you’re looking to qualify for an FHA insured loan, here’s what you’ll need to do:
- Save at least 3.5% of the purchase price of the home you’re interested in buying. (Remember: your mortgage payment must be approximately 30% of your monthly gross income.)
- Keep steady employment. If you’re considering leaving your current job or switching careers, doing so could mean waiting until you’ve held your new job for two years.
- Keep on top of your bills. More than two thirty-day late payments in the past two years will probably spell doom for your FHA application.
- Pay down any state tax liens.
- If you’ve had a bankruptcy or foreclosure, you’ll just have to wait out the required two or three years. Make sure you keep your credit solid in the meantime!