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How to get preapproved for an FHA loan
What to expect in the early stages of applying for this government-backed loan.
A preapproval letter demonstrates that a lender is willing to finance you and shows sellers that you’re a serious buyer. As you’re shopping for a house, it also informs your home search. You’ll know the amount of mortgage you qualify for, and this can help you narrow down your search.
A credit score above 580 and at least two years of steady employment could qualify you for a 3.5% down payment with an FHA loan, but these aren’t the only requirements. So it’s a good idea to understand the ins and outs of getting preapproved before applying.
5 steps to apply for an FHA preapproval
Before you apply for preapproval, make sure you meet the requirements of an FHA loan. Let’s take a look at what those requirements are and what you need for preapproval.
1. Find a lender
Compare banks, credit unions and online lenders, and consider the interest rates and fees each charges and individual lender’s specific requirements for approval. Potential lenders will want to review your income and credit history to verify your ability to pay your down payment and monthly mortgage, so expect to share financial information.
Although the FHA sets standard requirements and many FHA-approved lenders follow these standards, these requirements can vary across lenders. FHA-approved lenders typically look for:
- A minimum credit score. It’s possible to qualify for an FHA loan with a credit score as low as 500, but you’ll need a 10% down payment. To qualify for a 3.5% down payment, you need a credit score of 580 or higher.
- Documentation on the source of your down payment and closing costs. You’ll need proof that you can put down at least 3.5% of your home price to qualify for an FHA loan. Lenders will also need to verify you have sufficient funds to cover closing costs and any associated fees.
- Employment history. Lenders want to see at least two years of steady employment from the same employer. Be ready to verify your employment with an employment letter, pay stubs and W-2 forms.
- Income. Be ready to document your income through pay stubs, bank statements or tax returns. Lenders expect steady income for at least two years.
- Debt-to-income ratio. The maximum debt-to-income ratio for an FHA loan is 50%. However, requirements vary by lender and can be as low as 31%.
2. Gather paperwork
Required documentation varies depending on your specific situation, but it’s a good idea to collect the following before you apply:
- Recent bank statements and pay stubs
- Two years of W-2s
- An employment verification letter
- Asset statements of retirement and brokerage accounts
- List of current debts
- Records of bankruptcy and foreclosure
3. Fill out an application
Apply online or in person depending on the lender and your preferred application method. If you prefer for a loan officer to help walk you through the application process, applying in person might be the way to go. And while traditional banks may offer online applications, online lenders specialize in delivering a streamlined online application process.
Online marketplaces like Credible or LendingTree are a good way to reach more lenders using a single application.
4. Wait for a preapproval letter
The time it takes to be preapproved depends on the lender and your application. Depending on how you apply, this can take from one day to a couple of weeks.
Online mortgage lenders are typically quicker, often taking a matter of minutes — or a couple of business days through an automated system. If your application is incomplete or if the lender needs more information for verification, it could take longer.
Preapproval letters have an expiration date and are generally valid from 60 to 90 days. To find specific information about the timeline, consult your mortgage company.
5. Keep applying
Contact multiple lenders to compare rates and choose the right option. Some lenders might offer credits that others don’t, while other lenders might come in with a lower interest rate, saving you thousands of dollars over the loan’s lifetime.
As long as you apply within 45 days of your first application, your credit won’t take an additional hit. The major credit bureaus understand you’re rate-shopping, and those multiple inquiries will usually be treated as one inquiry.
Compare mortgage lenders and brokers
Compare these lenders and lender marketplaces by the type of home loan you’re searching for, state availability and minimum credit score (for a conventional loan). Select See rates to provide the company with basic property and financial details for personalized rates.
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What happens if I’m rejected?
If you’re rejected during the FHA loan preapproval process, check that you met all the criteria or apply to another lender. If your credit score is too low or your debt-to-income ratio is too high, analyze your credit and try giving it a boost. Some lenders will also reject your preapproval if you don’t have money to cover your down payment.
If you have a major change in your financial situation or debt-to-income ratio between preapproval and final loan approval, you could get denied. This can include situations like a recent employment change or newly acquired debt. You could also get denied if your home is appraised too low for the loan’s amount.
Bottom line
Preapproval for an FHA loan gets you one step closer to purchasing a home. Once you know you qualify for this government-backed loan and gather the paperwork you need, compare lenders that offer FHA loans to get the best rate.
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