Who Can Get an FHA Loan?

Just about anyone can get an FHA loan currently. On this type of loan, unlike others, there are no income limitations. On the other hand you will have limitations on the amount that you are wanting to borrow for your Alabama home loan

To qualify for this loan you will need to have decent credit. You don’t have to have perfect or close to perfect credit for this loan but it cannot be terrible either. Also you have to have reasonable debt to income ratios. Debt to income just means the amount you have to be paid monthly for bills, etc. in comparison to your income.

Documents You Will Need To Bring

When applying for the FHA home loan providing all documentation is imperative. Here is the list of documents you will need to bring with you when you are applying for your FHA loan:

• Two years of tax returns- (tax preparer may need to make you a copy)
• Most recent two to four paystubs for your employer
• Most current two years of W2s or 1099 forms.
• Most current three months of bank statements of all accounts with each financial institution you are affiliated with.
• If you have a current landlord you will need contact information for that individual.
• If you have filed bankruptcy in the past you may need to bring in that information with you as well.
• Driver’s license
• Social security card
• Green card or work permit (only if applicable)

If self employed, you will need to bring in your most current three years of year-to-date profit and loss statement.

If there is a co-borrower on the loan with you, you will need to bring in their information.

If you are just refinancing or have another property already owned here is what you will need to bring in:

• Property tax bill of current residence(s) owned.
• Hazard or HomeOwner’s Insurance Policy paperwork.
• You will need the note and the deed to the property of which the current loan is on.
• If you have payment coupons, receipts or documentation showing proof of mortgage payments you need to bring also.
• If you own a multi-unit property and have tenants there, you need to bring in your rental agreement documents.

Borrower’s Eligibility

A borrower, for this type of loan, must have a social security number in able to provide the most current or previous two years of credit, assets, and income. Aliens, who are permanent residents, must have Green Card information to provide in order to qualify for this FHA Alabama home loan. As far as non-permanent aliens, you also could be eligible, but you need to have evidence of legal residency and show proof that you have the ability to work in the United States. This information needs to be at least satisfactory for consideration.

Income Guidelines

There are several different types of income that you may or may not know that help qualify you. Overall job history for job changes when advancing, for wage increases, and for career pathing. The borrower’s employment history for the most recent two years is documented by the Lender. There is no set minimum length of time that a job position is held by the borrower set by HUD to actually qualify for an FHA loan though. When schooling is included in the most recent two years of income, then it will be documented and the borrower’s full job history will then be analyzed.

The loan, or file, may be subject to a denial or counter-offer if it is determined that the borrower’s income or employment status is subject to change negatively. This is usually determined in the processing of the home loan. The income must be expected to continue as the same for the first three years of the home loan or mortgage. This rule does apply for each of the following types of income: Social Security, Retirement, Disability, Child Support, Alimony, Self Employment and regular Wage Income.

Overtime/Bonuses

An average of the most recent two years income and current gross income, which is year to date, will be taken. It must be lesser of current year to date or the two year average will be the income amount used. Also, you can use both overtime and bonuses to qualify for FHA home loans.

Part time income/2nd job income

An average of the two years plus year to date gross income is used to qualify. The borrower must show a history of at least 2 years on the second job for it to qualify and count as income.

Commission

The Lender must document current pay stubs that include the commission income. The income will be averaged over the most recent two years. This will be done by analyzing the Borrower’s past two years tax returns. Before the average is computed any un-reimbursed business expenses must be subtracted from the borrower’s income.

Pending Retirement/ Income Reduction

The reduced retirement, or any other type of reduction in income, will be used as the effective income to be used.

Notes

Borrower will need to provide copies of cancelled checks and/or tax returns to show receipt of income for a minimum of the last year. The length of payment to be received by the borrower and the amount must be documented with a copy of the note.

Interest/ Dividends

The average of the most current two years of income by using current tax returns will allow this income to be used.

Government Assistance

Unemployment, worker’s compensation, welfare, foster children care are all types of government assistance. These types of income may be used only if the government agency for that income provides documentation that the income will be in continuance for at least the next three years. When using unemployment compensation though, a average of two years will be used to qualify.

Rental Income/ Liabilities

Any rent received on properties that do qualify, may be subject to tax return verification. Any depreciation on property will be added back into the income. Any positive will be added to wage income of the borrower. As for recurring debt, it will be used or treated as a recurring debt.

Total number of properties will need to be verified and a map disclosing the locations must be submitted to evidence compliance with HUD’s 7 units rule limitation. This is if six or more units are owned by borrower in a two block area.

Social Security and VA Benefits

When this income is used the government agency that provides that income to you must provide written verification of payment. There must be three years of continuance documented from them as well.

Expense Account Reimbursement and Auto Allowance

The only amount that is allowed for usage on income is the amount by which the borrower’s allowance or reimbursement exceeds your actual expenses.

Trust Income

This also may be used as income, as long as the income from trusts states and provides documentation showing there is a three year continuance of this payment amount.

Non Taxable Income

There are some public and disability assistance payments that are not taxable to the Federal Government. Please ask further about this in your consultation with a home loan originator.

Self Employed Guidelines & Limitations

Any borrower that owns at least 25% or more of the business is considered as self employed. In most cases, the FHA, will require a two year history of tax returns to be able to verify your self employment income. Documents you will need to bring in will include: individual tax returns including W2 forms and 1099 forms that are signed and dated, a current year to date profit and loss statement and also a balance sheet, which need to be executed by the borrower and signed copies of your business income tax returns of the current or previous two years .

Credit Guidelines

Your overall performance in paying debts as agreed will be evaluated and also the most current or previous two years of your credit history. If there is no credit yet established for the borrower the lender must develop a credit profile line which will be used from different forms. It will include: rental payments, utilities, installment debts, and any revolving accounts.

What is FHA Mortgage Insurance

Upfront Mortgage Insurance, also known as UFMIP, is when the premium for your mortgage insurance is collected at time of closing. It is then sent to HUD to insure your loan. The rate is currently at 2.25% times the base loan amount. This amount not only can be paid by you at closing but could either be paid by the seller or lender. Also, if approved, this amount could be added into your total loan amount. To obtain a partial refund for your UFMIP, you would need to have your loan refinanced to another FHA mortgage company within the first three years.

Along with paying the premium upfront, on all terms more than fifteen years, monthly mortgage insurance may be charged as well. Monthly can be cancelled prior to the payoff of your FHA Alabama home loan.

What If I Already Have an FHA Loan?

For most cases FHA will not insure more than one mortgage per borrower. There are a few times though that FHA will consider and those include: if you have an increase in the family size living in your home, relocation to a new area, if you are vacating a property which was owned jointly, if you were a non-occupant co-borrower. Also things that could hurt the amount in which you are trying to borrow from FHA can include: identity of interest with buyer and seller, construction of a new home, a co-borrower that will not be living at that property or if it’s a home with 3 or 4 units which goes into rental income. You will need to discuss further with your loan or mortgage company for any further questions regarding this.

Can I Refinance FHA?

If the existing lien is not FHA insured already and it has been less than a year before the refinance, the maximum loan to value calculation will be applied to the lesser of the sales price of property or the current appraisal amount or value. Only allowable closing costs can be added to the loan but only if you are not doing a cash out refinance. On repair or remodeling done to the home, if you can provide satisfactory documentation and information on these amounts, they can be added to original sales price.

When doing a cash out refinance the owner must occupy that property, an FHA appraisal will be done and required to be done on property address, UFMIP refund will apply if it already a HUD insured current lien, and allowable closing costs are not included in this calculation. Please note that in the state of Texas cash out refinances are not allowed.

When doing a regular rate and term refinance the owner must occupy that property, an FHA appraisal will be done and required to be done on property address, there is no cash back at closing for the borrower, a line of credit may be included in the payoff amount if over one year and draws on line of credit don’t exceed in the amount of $1,000.00.

Last refinance type is called a streamline refinance. There are actually three types of a streamline refinance. You have streamline without appraisal, streamline with appraisal and credit qualifying streamline. You can ask your loan or mortgage professional which one would be the best one for you and what you qualify for.

FHA Vs. Conventional Loans

Most people will actually just go with whatever their lenders recommend them for, but each person should have a general or basic understanding of each loan. The main difference in the qualifying factors of the two loans is the credit qualifying criteria of the borrower and,if applicable, the co-borrower. Another benefit of FHA over a conventional loan is that FHA will allow you to have your down payment gifted and this allows the money that is necessary for buying a home in today’s market.

The downside to FHA is that on a regular conventional home loan you do not have to pay a upfront mortgage insurance premium.

General or Basic Info

For today’s current real estate market, current and prospective homeowners are presented with too many decisions and problems regarding the purchase and/ or the financing of a home. Although it is called a “buyer’s market” the purchase and finance process of a new home could be stressful. The FHA came in though to help out so it wouldn’t be so stressful on lower income and lower credit families.

Sue Nguyen – Loan Officer/Branch Manager
sue.nguyen@htmortgage.net
Phone: 251.445.2282
Cell: 251.259.0868