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FHA Loans

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 obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to 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 an FHA Loan for additional savings.

Your loan approval depends 100% on the documentation you provide at the time of application. You’ll need to supply accurate information on:

Employment

  • Complete income tax returns (2 years)
  • W-2 & 1099s (2 years)
  • Pay stubs (past 2 months)
  • Self-employed: Tax returns + YTD P&L (3 years)

Savings

  • 3 months of full bank statements
  • Statements for retirement accounts, stocks, mutual funds, etc.

Credit

  • Recent bills/statements with account numbers and minimum payments
  • Rental verification (landlord contact or 12 months rent checks)
  • Utility bills for thin credit profiles
  • Bankruptcy/discharge papers (if applicable)
  • 12 months of checks written for co-signed loans (to prove you’re not making payments)

Personal

  • Driver’s license and Social Security card
  • Divorce/alimony/child support documentation (if applicable)
  • Green card or work permit (if applicable)
  • Homeownership paperwork (if applicable)

If Refinancing or Owning Rental Property

  • Copy of Note & Deed
  • Property tax bill
  • Homeowners insurance policy
  • Current mortgage coupon
  • Rental agreements (for multi-units)

The main difference between an FHA loan and a conventional home loan is that FHA requires a lower down payment and offers more flexible credit qualifications. It’s designed to help borrowers who may not have perfect credit or large cash reserves. Conventional loans rely heavily on credit scoring and strict guidelines.

Your total monthly housing cost (PITI) should not exceed 29% of your gross monthly income. FHA also allows up to 41% DTI including long-term debt.

Example:
$3,000 x .29 = $870 Max PITI
$3,000 x .41 = $1,230 Max total housing + long-term debt

FHA ratios are more flexible than most conventional loans.

A bankruptcy doesn’t automatically disqualify you from FHA financing. Generally, you need:

  • 2 years since Chapter 7 discharge (with reestablished credit)
  • 1 year of payments into a Chapter 13 (court permission required)
  • No late payments or major issues since the bankruptcy

FHA may consider exceptions for extenuating circumstances like medical emergencies.