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All You Need To Qualify For A HUD Loan

The truth is: there is no such thing as a HUD loan. At least not in the literal sense. Most HUD related homes are available through the Federal Housing Administration, through providers such as Fannie Mae and Freddie Mac, and there are numerous situations in which choosing an FHA-insured loan is a solid option. If you're a first-time home buyer, for example, or if you're currently in some sort of financial flummox - like you're worried about your monthly payments going up, or you don't have much money to put down on a house and want to still keep monthly payments low - an FHA-insured loan should look extremely appealing to you.

Mostly because of the fact that they're insured by the government, more and more people are turning to FHA loans as a way of home buying than ever before. And it's for good reason. FHA loan qualifications require low down payments (only 3.5 percent!) and offer competitive interest rates. Furthermore, they're designed to be easy to qualify for, and you don't need anything like perfect credit to qualify.

You will, however, need the following when you go to apply for an FHA/HUD loan:

  • Two years of steady employment. In addition to this, your income over those last years will either have had to stay the same or increased. This is important, because it's necessary that your mortgage payments don't exceed 30% of your income if you want to qualify for a loan.
  • Be up to date on your credit cards. You'll need to have less than two outstanding payments of more than thirty days.
  • No bankruptcies in two years. The FHA is one of the few organizations that will lend to you if you have a bankruptcy on your record, but you'll need to have good credit over the previous two years if you want to qualify.
  • No foreclosures in three years.

If you can say yes to all of those qualifications, you're ready to apply for an FHA loan. Remember to bring all of the following with you when you submit your application.

  • Two most recent tax returns. If you're self-employed you will need to bring your three most recent tax returns.
  • Your W-2 and 1099 forms from the past two years
  • Your paystubs from the past two months
  • Your three most recent pay stubs
  • Your most recent statement from any retirement, 401k or mutual fund plans you may have
  • Your most recent credit card statement
  • Your most recent statements on any utility bills you pay
  • Your landlord's contact info
  • Copy of driver's license
  • Social Security card

Types of Loans

There are two different types of loans you can apply for.

  • Fixed Rate Loans: Fixed rate loans keep your mortgage at the same level throughout your payment period.
  • Adjustable Rate Loans: Adjustable loan mortgages allow for you to keep your interest rates and monthly payments low but with the expectation that they may rise a little bit over the course of your payment period. The FHA uses 1-year Constant Maturity Treasury Index statistics to calculate the changes in your interest rate, but your loan payments won't change by any more than 1 or 2 percentage points per year, no matter what. In all, the maximum interest rate change during your entire payment period will be no more than 6 percentage points from the initial rate.