NBT Home Loans <br/> A Division of NBT Realty Serv
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FHA Loans

FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates, it just guarantees against default.

FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home.

FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.

  • Buy a house with as little as 3.5% down.
  • Ideal for the first-time homebuyers unable to make larger down payments.
  • The right mortgage solution for those who may not qualify for a conventional loan.
  • Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.

Loan approval depends primarily on employment history, income, credit, and documentation. While the documents needed may vary, the following are common requirements:

For W2 and 1099 Wage Earners:

  • W-2 & 1099 Statements for past 2-years
  • Pay-Check Stubs for past 2-months showing year-to-date income consistent with the prior year

For Self-Employed and some 1099 Wage Earner:

  • Complete Income Tax Returns for past 2-years (federal only)
  • Year-to-date Profit & Loss Statements

Savings

  • Bank statements for all accounts being used for down payment and closing costs for the past 2 months. (Note: lenders require all pages including pages left intentionally blank.)
  • For some, most recent 2 months (or last annual or quarterly) statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc. Feel free to call us to confirm if these are needed for you.) 

Credit

While most lenders request borrowers give them a list of all credit cards, balances, monthly payments, landlords, utility bills, etc., we do not. Instead, please call us and we’ll ask a few key questions. Then with your permission, we’ll order a lender required “tri-bureau” credit report giving us the information needed and provide you with a copy of the report. 

 Note: It is very important to not have multiple credit reports pulled (even so called “free ones”) since these may lower your credit scores. In addition, borrowers need to provide: 

  • Divers License (or valid passport or government issued ID such as military)
  • Any Divorce, Alimony, Child Support papers, etc. 
  • Green Card or Work Permit if applicable

    When Refinancing or Those With Rental Properties

    • Mortgage Statement
    • Property Tax Bill
    • Proof of Hazard Insurance (Such as Declaration Page and your statement or invoice)
    • Rental Agreements (If applicable)
    • Additional Documents may be needed on a case-by-case basis

    The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.

    Your monthly costs should not exceed 29% of your gross monthly income for a FHA Loan. Total housing costs often lumped together are referred to as PITI.

    P = Principal

    I = Interest

    T = Taxes

    I = Insurance

    Examples:

    Monthly Income x .29 = Maximum PITI
    $3,000 x .29 = $870 Maximum PITI

    Your total monthly costs, or debt to income (DTI) adding PITI and long-term debt like car loans or credit cards, should not exceed 41% of your gross monthly income.

    Monthly Income x .41 = Maximum Total Monthly Costs
    $3,000 x .41 = $1230
    $1,230 total - $870 PITI = $360 Allowed for Monthly Long Term Debt

    FHA Loan ratios are more lenient than a typical conventional loan.

    Yes, generally a bankruptcy won't preclude a borrower from obtaining a FHA Loan. Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.