Do you want to learn what the loan requirements are to buy a home with a FHA mortgage in this year? The 2018 FHA loan requirements remain attractive to renters because the credit standards are not prejudice and the down-payment rules are very reasonable. Getting a pre-approval for a FHA loan is the first step for millions of people buying a house for the first time. Borrowers love this government finance program because the FHA requirements it is is one of the easiest mortgages to qualify for and they have a history of very low interest rates. Realtors love the FHA loan program because the credit requirements are relaxed and you do not need a large deposit to be approved by a trusted mortgage company.
Flexible credit score minimums and low FHA down-payment requirements are just a few of the reasons that Federal Housing Administration has been backing the most popular loan programs in the country for the last eight decades.
However, the days of limited documentation with FHA and other government mortgage products appear to be numbered. Documentation is an area where major changes have been made in the mortgage business in the past five years. The federal government requires lenders to require you the borrower to submit more documentation than a decade ago. That doesn’t mean that 2018 FHA requirements are not easily obtainable. If you can afford a house, the the Federal Housing Administration has made it a priority to give the lending community a solid foundation for approving your FHA mortgage application.
There are two simple reasons for this: First, the mortgage meltdown was largely due to low doc and no doc mortgage loans. When people do not have to prove their income with documentation, there is a much higher chance of default. Second, the US government now has the Ability to Repay rule that took effect in 2014. This law requires the approved FHA mortgage lender to do its due diligence to ensure you have the income to afford the loan.
What this means for you is you will need to supply plenty of paperwork to get pre-qualified for your FHA mortgage. Below is a checklist of the documentation required as of 2018 to get a pre-approval for FHA loans , as well as for the loan to close.
A pre-approved FHA mortgage is an important part of the home buying process. if you want to be insured by the Federal Housing Administration. When you shop for a house, you want to show sellers that you have been approved for a loan. Many real estate agents will not even show you the house unless you have been pre-qualified for a mortgage. It also makes sense to determine how much you can afford with a FHA loan before you start shopping and get your heart set on a house if you can’t afford it.
What FHA Loan Documents Are Required?
Note that individual lenders will have different specific paperwork requirements, but with FHA loan approvals, there will always be the same documents required by the US government. HUD rules states that FHA must ensure that the loan package has all documentation that supports the decision of the lender to give its approval. Here are the documents you will need to submit to meet the FHA loan requirements this year.
Loan Application for a FHA Mortgage
All FHA borrowers who will have responsibility for the mortgage debt have to complete and sign the Uniform Residential Loan Application. Applying for a FHA loan is pretty simple, but the application and disclosures must be completed correctly. You can’t omit information from the previous years. The FHA approved underwriter will want to consider your income, credit, debt obligations, payment history and job stability for at least the last 2-years.
Today, all lenders in the US must obtain proof from you that you have a social security number. The HUD handbook states that all borrowers in the US must have a social security number and must provide proof of it to the lender. Usually, all you need is a photocopy of your SS card. Since the Department of Housing and Urban Development added this step to the FHA requirements, fraud has decreased.
As you would expect, your FHA lender will need to see a copy of the credit report for each borrower on the loan. The lender must show that it is making its credit decision based upon a review of your credit report. The credit reports shows how well you have paid back your debts in the past and how much current debt you currently have.
Many borrowers choose FHA home loans because of the credit score flexibility with the program. You can technically qualify for an FHA mortgage with a 500-credit score. That low of a score will make it hard, but it is possible. To qualify for a 3.5% down payment, you need to have a 580-credit score. Generally, a score of 620 or above will give you the most choice of lenders. Even though the minimum score is only 500, most lender will be looking for stronger credit credentials, especially if you are seeking a 3.5% down-payment.
Your loan has mortgage insurance on it that you pay for up front and as part of the monthly payment. So the broker or lender is able to give people with lower credit scores a loan.
All HUD-approved companies are aware of the FHA credit requirements, but some lenders choose to add overlays in underwriting, to minimize the risk of delinquencies and defaults. So just because FHA mortgage requirements permit credit scores as low as 500, doesn’t mean that all government lending companies are willing to take on the risks. When reviewing different companies always ask them what their minimum credit score for FHA loans is, as it can vary significantly between various lenders.
Employment Verification to Meet FHA Requirements
HUD also requires that FHA get proof of your employment. There was a time when you did not have to prove where you worked; the lender would take your word for it. But now you must show proof of where you are getting your income. Basically, you can just give your employment information on the FHA mortgage application, which includes the name, address and phone number of the employer.
If you are self employed, you can note on the FHA application that you work for yourself and list the address of where your office is.
Income Documentation for FHA
FHA lenders are required to verify W2’s for the past two years if you are a salaried employee. If you own your own business or considered an independent contractor, you will need complete tax returns and 1099’s for the previous two years. This information is used to verify your income for the loan underwriting and to ensure that you can afford the loan payments. Tax returns are particularly important for the self employed as you do not have pay-stubs to provide to the FHA mortgage lender.
Also, if you are self employed, you will need to give the lender a profit and loss statement for the current year or quarter and three-months of bank statements. The FHA requirements for self-employed and independent contractors requires more income documentation and the process could take longer if you aren’t organized and provide your loan officer with the requested paperwork in a timely manner.
FHA Amendatory Clause
This is a document that is unique to FHA mortgages. After you are approved for the loan and the deal is going to closing, you have the chance to get out of the deal without giving up your deposit. Some of the reasons that people back out of the loan is if the home appraises under the sales price. With today’s housing market, this is less of a problem as most homes are appraised for the sales price or higher and meet the FHA loan requirements. However, when the market falls in the future it could become more of a problem for FHA applicants.
Interest Rates on FHA Loans
The Federal Housing Administration has made affordability a priority with FHA loans, so it should come as no surprise that the FHA rates today remain competitively priced when comparing to other conventional mortgages backed by Fannie Mae and Freddie Mac. Don’t forget to compare your total monthly mortgage payments when considering other types of loans, as FHA mortgage insurance premiums are sometimes higher than private mortgage insurance. The bottom line is that you can’t simply compare interest rates when comparing home loans. Consider your total payments that include, principal and interest, mortgage insurance, taxes and property insurance and you are more likely to make a prudent decision.
Takeaways on Meeting the FHA Mortgage Requirements
Getting qualified for a FHA mortgage is a more onerous process today than a decade ago. You do need to have plenty of paperwork to show that you can afford the home and the 2018 FHA requirements have been adjusted with this goal in mind. And there are other documents needed to finalize the loan that did not exist in 2008 before the crash. But being approved for a FHA mortgage doesn’t have to be difficult if you are organized and have all of the above documents, you should be able to get pre-approved for a FHA loan and move into your home in 2018 with the confidence that affordable housing provides.
References: FHA Document Checklist Requirements. (n.d.). Retrieved from http://www.fhahandbook.com/blog/fha-document-checklist-requirements/