FHA loans are the perfect solution for anyone that has less than perfect credit or little money to put down on the home. It used to be a first-time homebuyer’s program, but today, it works well for many borrowers. Knowing how to get pre-approved for an FHA loan is an important step before shopping for a home.
Borrowers that get approved for an FHA loan can put down as little as 3.5% on the home and benefit from the relaxed credit requirements. In order to determine if you qualify, you should secure a pre-approval. Not only will you know if you qualify for the loan, but you will also know just how much you can afford.
Keep reading to learn how to get pre-approved for your next FHA loan.
Gather the Necessary Documents to get Pre-Approved
Getting pre-approved for an FHA loan means you’ll need to provide the lender with a variety of information. The lender will start by pulling your credit report. They cannot pull it until you sign a disclosure allowing them to use your personal identifying information to pull this report, though.
Once the lender determines that your credit score is at least 580, which is the FHA minimum credit score allowed, they will need a variety of other financial information from you. This includes:
- Paystubs that cover the last 30 days of your employment
- W-2s from the last 2 years
- Proof of any assets you will use for the down payment and/or closing costs
- Contact information for your current employer
- Contact information for your previous employer if you’ve been with your current employer for less than 2 years
- Letter of Explanation for any unique circumstances on your credit report or employment history
The more documents you have gathered, the quicker a lender can provide you with a pre-approval. Lenders must evaluate your income, employment stability, debt ratio, and financial risk. They put all of the factors together that you provide to determine if you are a good risk.
Find an FHA Approved Lender
Once you have your documents together, it’s time to find an FHA approved lender. There are many lenders out there already approved by the FHA. It pays to get a quote from several lenders to determine which one offers the lowest rate and fees.
You have many options when looking for an FHA approved lender including using your current bank as well as shopping online for an FHA approved lender. You should try to shop with at least 3 lenders to get a good idea of what is available to you.
Compare Your Options
Once you have the quotes from all of the lenders, you should compare your options. Pay close attention to the following:
- The term (10, 15, 20, 25, or 30 years)
- The type of rate (fixed or adjustable)
- The interest rate estimate (you won’t have a permanent rate until you lock the rate)
- The conditions of the loan
Once you choose a lender, they will provide you with a pre-approval letter. Keep in mind that this letter is only good for around 90 days. Each lender has their own expiration date, but 3 months is usually the maximum time allowed. If you don’t find a home and close the loan within that time, you’ll have to reapply for the preapproval.
Finding the perfect time to get pre-approved for an FHA loan is essential. You’ll want to allow enough time to shop for a home, but not too much time that the approval expires. Also, you should know that there is a difference between a pre-qualification and a pre-approval. A pre-qualification is a good estimate of how much you can afford. It by no means gives you any right to a loan approval.
Getting preapproved for an FHA loan is the only way to know for sure how much a lender will lend you if you meet their requirements. Take the time to secure your pre-approval when you are ready to shop for a home.