FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single-family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates; it just guarantees against default.

FHA loans allow individuals who may not qualify for a conventional mortgage to obtain a loan, especially first-time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

What is an FHA loan?

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home.

FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.

• Buy a house with as little as 3.5% down.
• Ideal for the first-time homebuyers unable to make larger down payments.
• The right mortgage solution for those who may not qualify for a conventional loan.
• Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.

Documents Needed for This Loan

Every loan scenario is different, so documentation requirements may vary. Below is a list of items that are typically required for FHA Loans.  

Employment

• Complete Income Tax Returns for past 2-years
• W-2 & 1099 Statements for past 2-years
• Pay-Check Stubs for past 2-months
• Self-Employed Income Tax Returns for past 2-years, and YTD Profit & Loss Statements. 

Assets

• Complete bank statements for all accounts for past 2-months
• Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.

Personal

• Drivers License
• Social Security Card
• Any Divorce, Palimony or Alimony or Child Support papers 
• Green Card or Work Permit if applicable
• Any homeownership papers (i.e. mortgage statement and homeowner's insurance)

FHA Versus Conventional Loans

FHA tends to be more flexible when it comes to credit issues and debt-to-income ratios. The minimum down payment for FHA Financing is 3.5%. Gift funds from family members are acceptable for the down payment, and can be combined with down payment assistance. 

Unlike Conventional Financing, FHA requires upfront and annual mortgage insurance (MIP), regardless of the down payment amount. The upfront MIP is a percentage of the loan amount (currently 1.75%), and is typically rolled into the loan amount. The annual MIP is paid monthly and is included in the mortgage payment.

Bankruptcy and FHA loans

Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.