FHA underwriting guidelines are what FHA approved lenders use to either approve or deny your loan. While this list is not meant to be an all-encompassing list of FHA guidelines and requirements, it will give you a good idea of what underwriters are looking for with respect to FHA guidelines.

FHA Loan Guidelines: Required Documentation

If you are planning to get an FHA loan, one of the most important parts of the process is gathering the required documents. Your lender will give you a complete list of documents. Here are some of the most important documents to get you started:

Mortgage Credit Analysis Documents

• Uniform Residential Loan Application (URLA) – All borrowers are required to accomplish this form, also known as the Fannie Mae Form 1003
• Loan Underwriting and Transmittal Summary
• SSN Verification – The lender must validate the Social Security Number of the borrower through the FHA Connection (FHAC) (or equivalent tool with the same function), together with the name and date of birth. The lender may also refer to tax returns, pay stubs, and other forms to verify the SSN.
• Credit Report – The purpose of the credit report is for the lender to analyze the borrower’s debts and payments trend. It includes all the available information in credit repositories that pertain to credit, public records information, and residence history.
• Verification of Deposit (VOD)
• Verification of Employment (VOE) – This document can be a simple document showing the employer’s name, address, and contact number which the lender can use to verify the borrower’s employment record.
• Federal Income Tax Returns – Lenders use the information on a borrower’s federal income tax returns to verify your income and ensure that you can afford the mortgage payments. This is an important part of the underwriting process.
• Sales Contract – Also called the “purchase agreement”, the sales contract must be signed by the buyer (in this case, the borrower) and the seller. Any amendments, as well as certification and other agreements must also be in the sales contract.
• Appraisal Report – The appraiser determines the market value of the property. Through this document, the appraiser ensures that the home meets the requirement for properties, specifically for FHA loans. This report is known as the Fannie Mae Form 1004 or the Uniform Residential Appraisal Report (URAR)
• Real Estate Certification
• Amendatory Clause
• Verification of Rent or Payment History on Past/Previous Mortgages
• Uniform Residential Appraisal Report (URAR)
• Explanatory Statement – In scenarios when you have to explain special circumstances, the explanatory statement is an ideal attachment. For example, it allows the lender to understand why you have no employment record for a certain period.
• Borrower Authorization for Verification of Information- this serves as a blanket authorization form that allows the lender to verify information needed while processing the mortgage loan application.

The above documents are just the standard requirements when applying for an FHA loan. It is just a partial list so be prepared to supply more documents. There are many possible scenarios during the loan application process and the paperwork requirements depend on a borrower’s specific scenario.

Your lender may require more documents and ask you to sign additional forms not mentioned here. However, keep in mind not to sign an incomplete form. Carefully examine every portion of the forms that your lender will ask you to sign.

FHA Loan Guidelines: Employment and Income

Effective Income

When an FHA underwriter cites capacity to repay, he or she is referring to a borrower’s effective income. As such, FHA loan guidelines call for the evaluation of the source of a borrower’s income to ensure that it can be verified, that it is stable, and that it has a high likelihood to continue.

Verifying Employment History

FHA does not put restrictions on the type of employment that a borrower has or on minimum length of time that they have held a position of employment. However, FHA loans do require that a borrower has at least two years of employment history. In case there are any gaps that last for at least a month, the borrower must provide an explanation and supporting documents. Those who get approved in the Technology Open To Approved Lenders (TOTAL) Scorecard are exempted from providing an explanation for employment gaps of up to 6 months.

Lenders need to analyze the borrower’s continued employment by looking at his educational background, employment record, qualifications for his previous jobs, and trainings attended. These have to be confirmed by the employer, including the assurance that the borrower is going to be employed with the current company for a period of time. If the history shows frequent job changes, it can be considered as long as it is within the same line of work and the income has been increasing. This can demonstrate income stability.

Self-Employed Borrowers

One is considered self-employed if he has at least 25% ownership in a business. To show stability, the ideal minimum length of self-employment to be considered for an FHA loan is two years. Prior to the self-employment, the borrower should have at least two years of work experience in the same line of work. Formal education and training can be considered as long as it is related to the industry in which the borrower is self-employed. Either way, the self-employed borrower must supply documents such as a year-to-date profit and loss statements and balance sheet, tax returns with all applicable tax schedules, and business credit reports.

Other Forms of Income

If a borrower has other sources of income aside from a full-time job, he may be able to use it in his loan application. The general rule is for these sources of income to having been obtained regularly in the past 2 years. The borrower should also be able to show that he will continue receiving the unconventional income in the coming years. Examples of these forms of income include the following:

• Overtime and bonus income
• Part-time income
• Seasonal employment income
• Commission income
• Retirement income
• Social security income

Where to go from here

With such a lengthy process, it is normal to feel lost after getting all these information about FHA loan guidelines. Take time to understand everything. It is also a good idea to start shopping around for lenders that can assist you with FHA loans. By doing so, you will have options which you can compare.

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