I'm not really sure one could talk about favorite horror literature and not mention H.P. Lovecraft. The man created an entire mythology around ancient, other worldly creatures known as Cthulhu. Lovecraft's writing is called cosmic horror (the idea that life is incomprehensible to human minds and that the universe is fundamentally alien). His tales deal with human running or at least trying to comprehend these these beasts. He also created the Necronomicon, a fictional book of the dead containing magical rites and forbidden lore.
There's not much I can say about him that hasn't already been said. Lovecraft is simply one of the most influential authors in the horror genre.
I enjoy his incredible vivid descriptions of the different types of being in the Cthulhu Mythos and the way the main characters always seem to battle their sanity in trying to comprehend their situation. It's magnificent.
My personal favorite stories are "At the Mountains of Madness", "The Shadow Over Innsmouth", and "The Tomb".