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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.

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Getting a preapproval letter from a lender shows that you’re a serious buyer when you’re shopping for a home.

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 before you schedule the moving truck, you’ll need to know the ins and outs of getting preapproved.

Steps to apply for a FHA preapproval

Before you apply for preapproval, make sure you meet the requirements of an FHA loan by providing details about your credit and work history.

  1. Find a lender. Compare banks, credit unions and online lenders by considering requirements for approval, interest rates and fees.
  2. Gather paperwork. Collect recent bank statements, pay stubs, two years of W-2s and an employment verification letter.
  3. Fill out application. Apply online or in person. Online marketplaces are a good way to reach more lenders with just one application.
  4. Wait for preapproval letter. Depending on how you apply, this can take from one day to a couple of weeks. During the Covid-19 pandemic, borrowers are waiting weeks for preapproval letters.
  5. Keep applying. If you think you can get a better rate, apply with multiple lenders. As long as you apply within 45 days of your first application, your credit won’t take a hit.

    What are lenders looking for?

    Potential lenders will review your ability to pay your down payment and monthly mortgage. Expect to share financial information with lenders.

    • Down payment. You’ll need proof that you can put down at least 3.5% of your home price to qualify for an FHA loan.
    • Credit score. You can technically 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.
    • 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 verification letter, pay stubs and W-2 forms.
    • Income. Be ready to verify 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%.

    FHA loans during the coronavirus

    Plummeting interest rates and financial uncertainty have put banks and lenders on alert. In an effort to avoid lenders defaulting, many banks have raised their minimum credit scores by 100 points, and some have even paused their FHA loan programs altogether. You may find that banks that once offered these government-backed loans are now raising their minimum credit score, tightening employment requirements or requiring a higher down payment.

    The FHA loan preapproval timeline

    The time it takes to be preapproved depends on the lender and your application. Online mortgage lenders are typically quicker, often taking a matter of minutes — or a couple of business days through an automated system. However, during the Covid-19 pandemic, borrowers are waiting weeks before approval. 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.

    What happens if I’m rejected?

    If you’re rejected during the FHA loan preapproval process, make sure 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 the money you need for a down payment.

    Bottom line

    Getting preapproved 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.

    Frequently asked questions

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