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    FHA Loans

    FHA loans have been around a long time. They are great options for those who may not be able to buy a home with their own resources. However, there are still many questions circling FHA home loans in Monmouth County. Let First Equity demystify these helpful home-buying tools by clicking on the questions below.

    What Are FHA Home Loans?

    The Federal Housing Administration (FHA) was established in 1934 to improve housing standards and conditions and to provide an adequate home financing system through insurance of mortgages. Families that would otherwise be excluded from the housing market were finally able to buy the homes of their dreams.

    FHA home loans in Monmouth County allow you to buy a house with as little as 3.5% down, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.

    The FHA does not provide home loans — it insures them. If a home buyer defaults, the lender is paid from the insurance fund. This is a perfect mortgage solution for those starting out or having a tough time qualifying for conventional loans.

    FHA vs. Conventional Home Loans in Monmouth County?

    The main advantage of FHA home loans is that the credit qualifying criteria for a borrower are not as strict as conventional financing requirements. The FHA allows the borrower who has had a few “credit problems” or those with no credit history to buy a home. FHA loans require a reasonable explanation of these derogatory items, but approach a person’s credit history with common sense credit underwriting. Most notably, borrowers with extenuating circumstances surrounding a bankruptcy that was discharged at least two years ago can work around the credit hurdles they created in their past.

    Conventional financing, on the other hand, relies heavily upon credit scoring. Credit scoring is a rating given by a credit bureau, such as Experian, Trans-Union or Equifax, that ranks you upon your credit profile. For each inquiry, credit derogatory or public record that shows up in your credit report, your score is lowered, even if such items are in error. If your score is below the minimum standard, you will not qualify — end of story.

    I’ve Had a Bankruptcy in Recent Years. Can I Get an FHA loan?

    Generally a bankruptcy will not preclude a borrower from obtaining FHA loans in Monmouth County. Ideally, a borrower should have re-established a minimum of two credit accounts, such as a credit card, or car loan, and wait two years after the discharge of a Chapter 7 bankruptcy or have a minimum of one year of repayment with a Chapter 13. Those with a Chapter 13 on their record must also seek the permission of the courts). Furthermore, the borrower should not have any late payments, collections or credit charge-offs since the discharge of the bankruptcy.

    Although rare, if a borrower has suffered through extenuating circumstances, such as surviving cancer but had to declare bankruptcy because the medical bills were too much, special exceptions can be made.

    What Documents Do I Need for an FHA Loan?

    It is important to understand that the loan approval is 100% dependent on the documentation you provide. To ensure a smooth transaction, it is crucial to have all your documentation in order before the initial application of the loan.

    Employment Information

    • Most recent two years of completed tax returns with all schedules
    • Most recent two years W-2′s, 1099′s, etc.
    • Most recent pay stubs covering one month period
    • If self-employed, you will need three years’ worth of tax returns and YTD Profit & Loss Statements

    Savings Information

    • Most recent three months complete bank statements for any and all accounts with all pages.
    • Most recent statement from retirement, 401k, mutual funds, money market, stocks and any other financial holdings

    Credit Information

    • Most recent statements from your bills, indicating minimum payments and account numbers
    • Should you have no credit, copies of your most recent utility bills will be needed
    • Name, address and phone number of your landlord, or 12 months of cancelled rent checks
    • If applicable: Complete copies of bankruptcy and discharge papers
    • If applicable: If you co-signed for a mortgage, car, credit card, etc., you need 12 months of cancelled checks, front and back, indicating you are not making payments

    Personal Information

    • Copy of Driver’s License
    • Copy of Social Security Card
    • If applicable: Copy of complete divorce, palimony, or alimony papers
    • If applicable: Copy of Green Card or work permit
    • If applicable: If you own another home(s) – see below

    If a Refinance or You Own Rental Property:

    • Copy of Note & Deed from current loan
    • Copy of property tax bill
    • Copy of hazard (homeowners) insurance policy
    • Copy of payment coupon for current mortgage
    • If applicable: If property is multi-unit, you need rental agreements

    How Large of an FHA Loan Can I Afford?

    For FHA home loans in Monmouth County, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.

    Example:

    Monthly income X .29 = Maximum PITI
    For a monthly income of $3,000, that means $3,000 x .29 = $870 Maximum PITI
    Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.

    Example:

    Monthly income x .41 = Maximum Total Monthly Costs
    For a monthly income of $3,000, that means $3,000 x .41 = $1230
    $1,230 total – $870 PITI = $360 allowed for monthly long term debt
    The ratios for FHA home loans in Monmouth County are more lenient than for a typical conventional loan. For conventional home loans, PITI expense cannot usually exceed 26-28% of your gross monthly income and total expense should be no more than 33-36%.