How to get preapproved for an FHA loan

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.

LendingTree

Compare mortgage and home equity rates from multiple lenders for free

Compare on LendingTree secure site

More details

Features	Loan types: Conventional, Jumbo, FHA, VA, USDA, Home Equity, HELOC, Reverse, Refinance Minimum credit score: Conventional: 620 FHA: 500 VA: 620 USDA: 640 Jumbo: 800 Minimum down payment: 3%

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

• Do preapprovals hurt your credit score?

  They can, but only temporarily. Preapprovals require a hard credit pull and can temporarily lower your credit score by a few points or more. If you’re shopping around, multiple mortgage lenders checking your credit within 45 days should only count against your credit once.

• I was preapproved for a loan but later denied. Why?

  If you have a major change in your financial situation or debt-to-income ratio between preapproval and final approval of your loan, you can be denied. This can include situations like a recent employment change or newly acquired debt. You can also be denied if the home doesn’t appraise for the amount of the loan.