Are you interested in the FHA loan? Since the 1930s, the U.S. government has installed programs that help homeowners borrow money to buy a house.
Not everyone is eligible for an FHA loan. You must meet certain criteria outlined by the Federal Housing Administration in order to be eligible for a loan.
Also, be prepared to provide lots of documentation and proof for the following items:
- Legal U.S. resident
You’ll need to provide proof of legal residency and a Social Security Number.
- Legal age to get a mortgage
You must also be of the legal age to apply for a mortgage in your state.
- Employment and income
Ideally, you can prove you have two years of consistent employment from the same employer and that your income has either stayed the same or gone up. You’ll need to collect W2s, income tax statements and paystubs.
- Credit score
The FHA loan does require that borrowers meet credit guidelines – check with a lender as credit scores vary.
- Debt-to-income and payment-to-income ratios
Lenders will look at your income and compare it with your debts to determine if you meet FHA eligibility requirements for debt-to-income ratios. Also, your expected mortgage payment must be around 30% of your income (before taxes and withdrawals.)
- Down payments
FHA loans require a 3.5% down payment. These funds CAN be gifted.
- Three years after foreclosure, two after bankruptcy (for non-homeowners)
If you foreclosed on your last house, you must wait three years until you apply for a new FHA loan. Approval will depend on credit and good documentation during the loan process. If you’ve experienced bankruptcy, you must wait two years until you are eligible for an FHA loan. If you were a homeowner during bankruptcy, you must wait three years.
FHA Streamline RefinanceThe FHA Streamline refinance was retooled in 2011 to help those already in an FHA mortgage take advantage of lower interest rates. Instead of getting your home appraised, you can refinance based on the original purchase price of the home and not its current value. This is extremely advantageous for those underwater in their FHA mortgages.
Although you do not have to verify your employment or income – or even have your credit pulled – on an FHA Streamline refinance you will need:
- Current on your loan payments.
Only one late payment within the past 12 months is allowed – no late payments within the past three months.
- Waiting period.
You cannot refinance back-to-back. You need at least six payments on your current loan. There must be at least 210 days in between your refinances.
- Show a “Tangible Benefit.”
Some acceptable reasons include reducing the monthly payment or getting out of an adjustable rate mortgage. (Not having extra cash.)