Gone are the days of low documentation home loans. Getting a home loan today requires a lot of documentation. And if you are prepared, it will make the process a lot smoother.
Credit Score and Credit History
The very best place to begin preparing for an FHA loan is to check your credit score. Make sure you get a “tri-merge” report that merges all your credit information from the 3 credit bureaus. You can get one at www.myfico.com or at any of the credit bureau web sites (Experian, Equifax, Trans Union). Or you can work with your loan officer to do a credit check for you. This is the best option because the loan officer will get a “mortgage oriented” credit report and the cost will be less to you.
Make sure you go through your credit report with a fine tooth comb to make sure everything on your report is accurate. For more information on credit tips visit my article at www.socalfhahomeloans.com. Generally you’ll need a 620 or above credit score to get the better FHA interest rates. Although you still can get an FHA loan with a score below 620.
FHA required Job History
Generally, FHA loan underwriters are looking for a 24 month job history to qualify. But there can be many exceptions to this. Gaps in employment are allowed if you have a good explanation (attending school, laid off, sabbatical, etc…). There also has to be an explanation if changing careers within the 24 month job history.
FHA required Income Documentation for W-2 Wage Earners
If you are a W-2 wage earner, you will want to gather your last month’s paystubs and last 2 years of W-2′s. If you receive a bonus as part of your income, the lender will require a 24 month history of that bonus in order to count that as part of your income. The lender verifies your bonus history by send a “verification of employment (VOE)” form to your employer who will fill out details of your pay on the form. Additionally, if you are paid hourly and your hours fluctuate or you receive overtime pay, the underwriter will also require a VOE and they may take an average of your monthly income over a longer period.
FHA Down Payment and Cash Reserves Documentation
FHA loans require that you document the source of your down payment, and also the 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 statements all pages where you’ll be getting your down payment. Or if a retirement account, your last 2 mos or quarterly retirement statement all pages. FHA allows you to receive a gift for ALL of the down payment. If you are receiving a gift, you must have a gift letter (which your loan officer will supply), bank statements from the gift donor showing the source of the gift, and evidence the gift was transferred to you.
Be careful of large deposits showing on your bank statements during the prior 2 months and while applying for a FHA loan. FHA underwriters will ask you to “source” any large deposits into your bank account over the last 2 months.
Details are extremely important with all the above documentation. You have to be meticulously detailed with gathering all the documentation, making sure it’s clearly readable, and making sure not even 1 page is missing. For instance with your bank statements, you must have EVERY page of your recent bank statement, there cannot be one page missing. And the statements must have your name and account number on them. And for example if you are self-employed, you must have ALL pages and ALL schedules of your personal tax returns (and corporate if you own the company). There can’t be any missing pages.
I hope you enjoyed this article. Please contact me for further details.
Rob Chomentowski
Sr. Loan Officer
858-922-7899 (direct)
rob@affinity-financial.com
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