What Documentation Do I Need to Provide for an FHA Loan?
The Federal Housing Administration, or FHA, offers low-cost loans to first-time home buyers. FHA loans are cheaper than private loans, as the government wants to encourage responsible people to stimulate the economy by purchasing homes. Home buyers must be able to provide documentation regarding their income level, credit rating and other qualifications.
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Income Requirements
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There is no minimum income requirement to qualify for an FHA loan, according to the Department of Housing and Urban Development. However, you must be able to provide proof of steady income for the past three years, such as a pay stub or tax return. You will also need to prove that you have consistently paid bills on time over the past three years.
Types of Income Allowed
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The FHA accepts income from a variety of sources, including child support and alimony payments, Social Security payments, regular pay from a job and veteran's benefits. Whatever your source of income is, if it is legal and you can document it, the FHA will accept it.
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Credit Requirements
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The FHA requires you to have paid all bills consistently for the past three years. In addition, you may not be obligated to use more than 41 percent of your income for other long-term debts. Short-term debts are allowed as long as you can pay them off over the next 10 months. You must demonstrate credit responsibility by giving a copy of your credit history report to the FHA. If you have had severely negative problems such as a bankruptcy, your credit history must show that these problems have been resolved. After bankruptcy is discharged, you must wait two years before applying for an FHA loan. You will not be eligible for a loan for three years after a foreclosure.
Gifts
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The FHA allows others to pay the down payment for you as a gift. If the gift is less than 3 months old, you must give the FHA the name of the donor and the amount of the gift. The FHA verifies gifts of this nature to ensure that you are not using loan funds from another source to pay your down payment. You may not repay the donor during the closing process.
Closing Requirements
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Before closing, you must purchase homeowner's insurance and mortgage insurance and pay the down payment. The down payment is usually 3 percent to 5 percent of the entire cost of the home. You must submit proof of homeowner's insurance to the FHA before you can finalize the purchase of your home. A down payment on your mortgage insurance of 1.5 percent of the closing cost is due at the time of closing.
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