FHA Loans

The popularity of FHA loans has skyrocketed in recent years. The federal government backs FHA loans, so they have relatively competitive interest rates, less stringent credit requirements, and require smaller down payments. They’re particularly appealing to young, first-time homebuyers with limited credit histories and cash reserves, especially since loan underwriters permit non-traditional lines of credit, like car insurance payments and utility bills.

An FHA loan down payment can be as low as 3.5 percent and may come from an eligible gift. Financial reserves beyond the immediate closing costs aren't required, which can help FHA borrowers save in upfront costs. An FHA borrower could also apply for a loan with a non-occupant co-borrower (like a parent) to help offset any credit qualification issues.

These loans are relatively easy to refinance and are relatively forgiving of bankruptcies and foreclosures. They simply require a two-year wait time following a discharge. However, be prepared for stricter appraisals, strict accounting of income, and lower loan limits. Also, FHA loans don’t work for investment and vacation homes, and a spouse’s debts can work against you, even if the spouse doesn’t co‐sign.

Benefits of an FHA Loan:

  • Easy to refinance
  • No cash reserve requirement
  • Down payments may be gifted
  • Relatively competitive interest rates
  • Down payments as low as 3.5 percent
  • Less stringent underwriting requirements
  • Allows the buyer to co‐sign with a non‐occupant co‐borrower

What you Need:

  • Your driver’s license
  • Your social security card
  • Payment stubs for the past month
  • Contact information for your landlord
  • Copies of your past two tax returns if you are employed
  • Copies of your past three tax returns if you are self employed
  • An accounting of regular monthly bills, including account numbers
  • A profit and loss statement for the current year if you run a business
  • Three months of statements for all of your savings and investment accounts

Additional documentation may be requested.