A huge key today in getting approved for a home loan is having all the right documentation lined up. You will be required to have the right documentation regarding your employment, salary and funds for your down payment. If you are aware what documentation is needed and you gather it ahead of time, it will significantly improve the process of getting approved for a FHA home loan.
Reviewing your current credit. The number one place to start in preparation for an FHA home loan is to take a look at your credit score and past credit. You will need to get your hands on a recent credit report. You will want a report that contains data from all 3 credit reporting agencies. You can question the lender you are dealing with to check your credit or your can go to the credit reporting agency web sites.
Once you have obtained a copy of your credit report, make sure you read through it thoroughly and check to see all the information is accurate. You will have 3 different scores from each credit bureau. The score you will be interested in is the middle score. FHA lenders will throw out the high score and low score and use your middle score to qualify you. Generally you want your midde score to be above 620, but it is still possible to qualify if you are below 620.
Employment History for FHA Loans: For an FHA loan the underwriter will look at your last 2 years of employment history. They are looking for a solid 2 year history of employment. It is generally OK if there were periods that you were for example unemployed or in school and not working over the last 2 years. That just has to be clarified with a letter of explantion to the underwriter.
Salary documentation needed for an FHA loan. If you are paid wages by your employer and reciece a W-2, the FHA lender will require your most recent 30 days copies of your paycheck. If part of your income comes from overtime, bonus and or your are paid hourly, the FHA lender will require your employer to fill out a form that your loan officer will send to them to clarify the details of your pay. You must have recieved bonus income the last 24 mos to include it in your income. Oftentimes if your hours vary monthly or your recieve overtime pay, the FHA lender will take a long term average of your income.
FHA Down Payment and Cash Reserves Documentation. FHA requires that you document the source of your down payment and your cash reserves you will have after closing on the house. As a note, FHA does not require you have cash reserves after closing, but it can help as a compensating factor if you are on the borderline of qualifying. To document the down payment and cash reserves, FHA will require your last 2 months of bank statments all pages. Or if a retirement account, your last 2 mos or quarterly retirement statement all pages. FHA allows you to recieve a gift for ALL of the down payment. If you are recieving a gift, you must have a gift letter (which your loan officer will supply), bank statements from the gift donar showing the source of the gift and evidence the gift was transfered to you.
If your last 2 months bank statements that you supply show any large deposits, the FHA lender will want you to clarify where the deposits came from.
Getting a home loan today requires detailed credit, income and cash reserve/down payment documentation. It is in your favor to be very organized and prepared to deliver your loan officer the documentation discussed in this article. Make you have this documentation ready and get it quickly to your loan officer. And make sure nothing is missing, there can’t be one page missing and everything has to be clearly readable. This ensure a very successful loan closing and minimize frustration.