• FHA loans require a lot of paperworkpaperwork 2 image by chrisharvey from Fotolia.com
  
  The Federal Housing Administration (FHA) is the world's largest insurer of mortgages and guarantees about one-third of the nation's home loans. FHA-approved lenders originate loans, and their underwriters are responsible for making sure each loan package complies with FHA's documentation requirements before mortgage insurance is issued. The FHA Handbook contains guidelines lenders must observe when processing and underwriting FHA-insured mortgages. They must ask sufficient questions to elicit a complete picture of the borrower's financial situation, source of funds for the transaction and the intended use of the property, according to the FHA Handbook. Underwriters must verify and document this information.
  
  

Standard Documentation

• Generally, an FHA loan package includes credit, income and asset documentation that supports the lender's decision to approve the mortgage. The lender's underwriter must pull a tri-merged FICO (Fair Isaac Corporation) credit score on all borrowers who will be obligated on the loan and analyze the borrowers' recent spending and payment behavior. They must also compare the monthly obligations (revolving credit, student loans, auto loans) that appear on the report and compare them to what the borrower earns. The underwriter verifies employment and earnings directly with the employer with a verification of employment (VOE) form. All documents may be up to 120 days old at the time the loan closes (180 days for new construction), says the FHA Handbook. VOEs must contain names and contact information for authenticity verification by the underwriter, according to the FHA Handbook. Underwriters must also analyze faxed documentation and Internet printouts for headers, footers and URL consistency. Certain documentation, such as divorce decrees or tax returns, may be older than 120 days because their validity isn't affected by being older. Underwriters also send verification of deposits (VOD) to banks for reserves and verification of rent/mortgage (VOR/VOM) to landlords and mortgage companies to verify timely housing payments. Underwriters must obtain a signature on each verification request form or have the borrower sign one general authorization form which covers all future verification processing.
  
  

Explanatory/Alternative Documentation

• When standard documentation isn't available, doesn't provide enough information, or provides inconsistent information, the underwriter must provide additional explanatory statements consistent with other information in the application to justify the lender's decision to approve the loan. If documents exceed the 120-day limit, the underwriter must obtain an updated, written verification directly from the verifying source. In lieu of a VOE, underwriters may use W-2s, paystubs and an IRS transcript to prove income. The borrower's two most recent, consecutive bank, retirement or other reserve account statements may be used in lieu of a VOD. Underwriters may also check the credit report for verification of mortgage payments.
  
  

Other Required Documents

• Underwriters must complete the loan package with the following mandatory disclosures and documentation: a Uniform Residential Loan Application (URLA), signed and dated by all borrowers; Addendum to the URLA; Mortgage Credit Analysis Worksheet listing all debt, income and credit information; Social Security Number evidence (copy of the SSN card); complete federal income tax returns (for self-employed borrowers, too); a certified copy of the sales contract plus any addenda and amendments; FHA's Real Estate Certification signed by all parties (buying and selling); Uniform Residential Appraisal Report; and FHA's Amendatory Clause (if the buyer is unaware of the property's appraised value at time of contract).