FHA loan is among the best choices of loan available right now for homebuyers looking for a low down payment and easy qualifying standards. The FHA or Federal Housing Administration is part of the Department of Housing and Urban Development of the US.
FHA is not the one that makes the loan. Instead, the loan gets funded by a lender approved by the FHA in accordance to the lending guidelines of FHA.
FHA basically protects lenders from loss in case of borrower default. Through this loan guarantee, FHA provides a form of federal assistance that allows moderate and low income homebuyers afford their dream home.
It was during the 1930s’ Great Depression when the FHA program was originally made to act as a catalyst to stimulate the economy of the nation and stabilize its housing market. From then on, millions of moderate and low income borrowers were able to refinance or purchase their houses through FHA loans.
Application for FHA Home Loan
The very first step when applying for FHA loan is to get in touch with a lender approved by FHA. FHA loan is considered as the easiest form of real estate loan where you can be qualified for since it just needs a low down payment and doesn’t require a perfect credit. The FHA loans are not only meant for single family properties. It is also possible to get a loan to refinance or purchase condominium, fourplex, triplex, or duplex provided that the borrower occupies one of the units. These loans are not meant for investors or for purchase of vacation homes.
For the process to officially start, you have to provide basic information to your loan specialist, which include the following.
- Address or addresses of the borrower for the past 2 years
- Social Security Numbers of all the borrowers
- Current Paystubs
- Employment information for the past 2 years
- Banking statements for the past 3 months
- Federal W2’s for the past 2 years
- Information about owned real estate properties if any
- Certificate of Eligibility ad DD-214 for the veterans
- Federal Tax Returns for the past two years, Business Balance Sheet for the self-employed, and Income Statement
- Pay for credit report and property appraisal by FHA
To be qualified for an FHA loan, you have to meet the following criteria:
- Must have a valid SSN, lawful US residency, and of legal age for mortgage signing in your specific state
- Must have steady history of employment, looking for a minimum of 2-year history
- Must have minimum down payment of about 3.5% to apply to the purchase price
- Mortgage payment which include PITI requires to be below 31% of gross monthly income
- Overall monthly debt, including credit cards, mortgage, student loans, auto loans, and others cannot go beyond 45% of monthly income
- Must be a minimum of 3 years from foreclosure with a good credit
- Must be a minimum of 2 years out of bankruptcy with a good credit
- Must have 580 minimum credit score