Do you plan to use an FHA loan to buy a house in 2015? If so, you should be prepared to supply a mountain of financial paperwork. It’s a necessary step in the application, underwriting and approval process. Below, we have provided a checklist of FHA documents to help you understand the documentation requirements for this popular program.
More Documentation Needed in 2015
Documentation is one of the areas where we’ve seen big changes over the last few years. Simply put, mortgage lenders are requiring more paperwork from borrowers today than they did in the past.
There are two reasons for this: (1) the mortgage meltdown of 2008 showed us that “low doc” and “no doc” home loans are trouble; and (2) the federal government’s Ability-to-Repay rule, which took effect in 2014, requires thorough document verification.
What does this mean to you, as a potential borrower? It means you’ll have to submit a lot of paperwork during the course of the application and underwriting process. There’s just no way around it.
When researching this article, we surveyed a number of FHA mortgage lenders about their current lending criteria and standards. We wanted to know what they’ll be doing differently in 2015, compared to in the past. Document verification was a recurring theme. Many lenders told us they are (A) requesting more documents from borrowers, and (B) spending more time verifying assets and debts. This is partly due to the Ability-to-Repay rule, mentioned earlier.
Checklist of Required FHA Loan Documents
Individual mortgage lenders have different paperwork requirements. After all, they are different companies with different business models and procedures. But when it comes to FHA loans, there are certain documents borrowers must provide regardless of which mortgage company they are working with.
According to the Department of Housing and Urban Development (HUD), the government agency that manages this program: “The mortgage loan application package must contain all documentation that supports the lender’s decision to approve the loan.” This includes a wide variety of documents relating to the borrower’s financial situation, as well as those pertaining to the property being purchased.
Common FHA documents include, but are not limited to, the following:
All borrowers who will assume responsibility for the mortgage debt must complete and sign a Uniform Residential Loan Application (URLA), also known as Fannie Mae Form 1003.
All borrowers must complete the standard application form mentioned above. Borrowers who use FHA loans, in particular, must also sign the HUD/VA Addendum to the Uniform Residential Loan Application.
Lenders are required to obtain proof of the borrower’s Social Security Number. According to the official HUD handbook: “All borrowers, including U.S. citizens, must have a valid Social Security Number (SSN) and must provide evidence of that SSN to the lender.” In most cases, a photocopy of the borrower’s Social Security card will suffice.
This is another commonly requested FHA loan document. Lenders use credit reports for a number of reasons. It helps them understand how you have borrowed and repaid money in the past. It also shows your current outstanding debts, such as car loans, credit cards and such. So it helps them measure risk as well as your debt-to-income ratio.
Verification of Employment
The Department of Housing and Urban Development (HUD) requires FHA lenders to obtain verification of employment. This can be accomplished with a simple document that includes the employer’s name, address, and phone number.
Most lenders will want to see federal income tax returns for the last two years. They use this information to verify your income level for underwriting purposes (and to ensure you can afford the estimated monthly payments). FHA loan document checklists can vary from one mortgage company to the next. There is no standard list used across the lending industry. But this particular item is required by HUD, so you can be fairly certain the lender will ask for it. The same goes for most of the other items on this list.
This is the so-called “purchase agreement” between you and the seller. As per HUD’s guidelines, the mortgage company must include this document within the FHA loan application package. It must be signed by both the buyer and seller, and must include any amendments or other agreements and certifications (see “real estate certification” below).
FHA Amendatory Clause
This document is unique to FHA-insured home loans. Basically, it gives the home buyer / borrower a way to back out of the deal (without sacrificing deposit money) if the home appraises below the agreed-upon sales price. It states that “the purchaser shall not be obligated to complete the purchase of the property described herein, or to incur any penalty by forfeiture of earnest money deposits, unless the purchaser has been given … a written statement … setting forth the appraised value of the property or not less than [dollar amount].” This FHA document must be signed by both the buyer and seller, as well as the seller’s real estate agent if applicable.
Real Estate Certification
The amendatory clause mentioned above usually includes a real estate certification as well. This is standard verbiage included in most loan application packages, including conventional products. It must be signed by both the buyer and the seller, as well as their real estate agents. All parties involved in the transaction must certify that the terms and conditions of the sales contract are true to the best of their knowledge.
HUD requires a home appraisal for all homes being purchased with an FHA-insured mortgage loan. It is the appraiser’s job to ensure the home meets minimum property requirements for this program, and also to determine the market value of the property. He will provide this information in the Uniform Residential Appraisal Report (URAR), also known as Fannie Mae Form 1004.
It’s also worth noting that mortgage lenders cannot have borrowers sign blank documents to be “filled in later.” This is a violation of FHA documentation requirements and guidelines. The HUD handbook states this clearly enough: “Lenders may not have borrowers sign incomplete documents … or blank sheets of paper.” These reasons for this rule are fairly obvious — you need to know what you’re signing!
Where to Learn More
This FHA document checklist was adapted from HUD Handbook 4155.1, Chapter 1, Section B. You’ll find this handbook on our HUD guidelines page. You can also find it on the HUD.gov website with a quick Google search. Chapter 1 of this handbook provides a lot of supporting information relating to documentation requirements. It’s well worth a read, for anyone planning to use this program.
Disclaimer: This article explains the standard documentation requirements for FHA loans and also provides a minimum document checklist. This is a partial list that does not cover all possible lending scenarios. While this checklist includes some of the most commonly requested documents, it is not exhaustive. Your lender might require additional forms that are not listed above. Every lending scenario is different because every borrower is different. Mortgage companies typically provide borrowers with a complete list of FHA documents needed to close the loan. Borrowers can (and should) request a paperwork checklist before applying for this program, or any other type of financing.