Aurora Mortgage Information

FHA Mortgage 101: Required Documents for Obtaining an FHA Loan

As more borrowers are considering FHA loans, they should know and learn what the necessary documents are to have to be approved.  It also needs to be noted that the market is constantly changing as are HUD’s guidelines and requirements.

The primary borrower must provide a copy of their social security card and current driver’s license. If they are not a citizen, they must provide a permanent residency card or proof that they are eligible to work in the U.S. by producing an employment authorization document. A co-borrower, whether occupying or non-occupying, must present the same required documentation and are subject to the same underwriting guidelines.

Income
For an FHA loan, borrowers must show 2 years of consistent work in the same field or with the same employer while maintaining a steady income. Documentation for income is as follows:

·         Two most recent years of W2s (with name and address of employer as lender may perform a verification of employment.

·         One month of pay stubs which document year to date (YTD) earnings.

·         Recent income tax returns (if requested).

·         Social security, pension and retirement income are documented with the most recent award statements.

·         Disability, workman’s compensation and child support must be supported with documentation that shows it will last for a minimum of 3 years.

·         Commission income requires 2 years recent tax returns and current pay stubs. Any un-reimbursed expenses will be subtracted from income before 2 year average is computed.

·         2nd job requires 2 years of W2s and current pay stub with year to day earnings.

·         Overtime and/or bonus (averaged for 2 years) is only used if it has continued for 2 years and must be documented with W2s.

·         Borrowers employed by a family business must provide pay stubs. The business must also verify whether the borrower has any ownership in the company through a written statement from the accountant that verifies ownership. In most cases, both the borrower and company tax returns will be required.

Credit
Although FHA is more lenient with credit issues, a borrower’s most recent 2 year credit history is very important as the overall performance of paying outstanding debts will be evaluated. Documentation for credit is as follows:

·         Credit report (provided by the lender) must have 2 lines of credit.

·         In lieu of active credit, borrower must document utility bills, rent payments, cell phone bills, etc. for a period of 12 months (all with no late payments)

·         Name, address and telephone number of landlord (lender will perform a verification of rent).

·         Court ordered judgments must be paid in full and documented.

·         Delinquencies on federal debts, such as student loans or tax liens, must be paid off or arrangements must be made and documented.

·         Child support must be documented with court ordered child support agreement showing how long payments will continue. Any payments remaining 10 months or longer must be included as debt.

·         Any debts that are to scheduled to begin payments within 12 months, such as student loans, will be counted as debt.

·         Chapter 7 Bankruptcy discharge documents (allowed after 2 years).

·         Chapter 13 Bankruptcy documents detailing the restructure of debts (allowed after 1 year).

Assets
Documentation of assets is necessary for an FHA loan in order to verify the borrower’s reserves as well as the source of deposit and down payment. Documentation for assets is as follows:

·         2 months of the most recent banks statements or 30 days most recent bank statements and verification of deposit (performed by the lender).

·         Copies of investment statements, 401ks, annuities, etc.

·         Large deposits in bank accounts must be documented for the source of funds.

·         Earnest money deposit canceled check and copy of the bank statement showing the balance before the deposit left the account and the ending balance after the deposit cleared.

·         Bank statements must show that there are sufficient funds to close the loan.

Gifts
FHA will allow a monetary gift that comes from a family member, close friend, borrower’s employer or labor union. This gift must be documented to show that no repayment is expected and that the donor will not place a lien on the property. Documentation needed for gifts is as follows:

·         Original signed gift letter (provided by the lender).

·         Document transfer of funds from the donor’s account to the borrower’s account with a copy of the canceled check or withdrawal document and deposit document.

·         Certified check is needed if gift is received at closing along with a copy of the withdrawal receipt from the donor’s bank account.

·         If the donor borrowed funds for the gift, documentation that these funds were not borrowed from a party in the transaction or the mortgage lender.

·         No cash on hand is allowed.

Although this may appear to be difficult, FHA loans are quite easy to obtain provided the borrower supplies us at GSF Mortgage with the necessary information. At any time during the processing and underwriting of the loan file, a borrower must be prepared to submit additional documentation to the lender.

The entire lending experience will be less stressful if borrowers prepare themselves with FHA Mortgage 101 and have the required documents for obtaining an FHA loan ready for the lender at the start of the application process. 

If you have any more questions regarding FHA loans, do not hesitate to contact GSF Mortgage in Aurora today!