How to Get FHA Loan Preapproval

Whether you’re a first-time homebuyer or ready to upgrade homes, a Federal Housing Administration (FHA)-backed loan can be an attractive solution. FHA loans have lower credit score and downpayment requirements, making them attractive options for homebuyers who are worried about their financial history impacting mortgage approval. Borrowers with a credit score over 580 who can afford a 3.5% down payment can consider an FHA loan to buy a home, and those with a lower score could qualify with a larger down payment. Ready to get started? Read on to learn how to get FHA loan preapproval.

Understanding FHA Loan Preapproval

FHA loans are insured by the Federal Housing Administration. Lenders like banks, credit unions and online direct mortgage lenders offer the loans to borrowers. Because of the federal guarantee, lenders will accept borrowers with lower credit scores, opening mortgage opportunities to more people. 

With FHA loans, borrowers must pay mortgage insurance premiums to protect the lender against financial losses in cases of mortgage default. 

In contrast, conventional home loans aren’t federally backed. You’re also not required to get mortgage insurance if you make a 20% down payment on the loan amount. 

To get an FHA loan pre-approval, you’ll submit documentation about income, debt and employment history to lenders. Exact documentation requirements vary by lender. Some may only require your credit score for a credit check. 

Getting prequalified for a mortgage helps you and lenders determine how much you’ll be able to afford. It also lets you focus your home search on properties within your budget and ensure the closing goes more smoothly. 

What Are the Requirements for FHA Loan Preapproval?

Lenders look to ensure that borrowers aren’t taking on a loan that’s too large and that they’ll be able to pay it back. Preapproval helps you and lenders understand your financial situation and purchasing ability. Key criteria that individuals or families need to fulfill in order to obtain preapproval for an FHA loan include:

• Credit score: FHA loans offer more flexible credit requirements. With a credit score of 580 or above, you’ll only need to put 3.5% down. With a credit score of 500 to 580, you could still be approved with a 10% down payment. You’ll need to provide your Social Security number for lenders to check your credit score and credit history. 
• Income requirements: There’s no set income requirement, but you must be able to prove steady income via pay stubs, tax returns or bank statements. Ideally, you’ll show that your income has been stable or increasing over the past two years. 
• Employment history: Lenders look for a stable employment history, with at least two years at your current employer. 
• Debt-to-income ratio: To qualify for an FHA loan, your debt-to-income ratio must be less than 43%. 

For preapproval, lender requirements for documentation vary. Some may only ask for your government-issued ID and Social Security number, while others will require proof of income, tax returns and bank statements. In addition to meeting financial FHA loan requirements, once you’ve found a home, the property must meet FHA requirements. 

The home must be appraised by an FHA appraiser, and it must pass minimum inspection standards. In addition, you can only get a new FHA loan on your primary residence, and you must occupy the property within 60 days of closing. You’ll also need to pay for mortgage insurance for an FHA loan. 

3 Steps to Obtain FHA Loan Preapproval

If you’re ready to obtain an FHA loan preapproval, you’ll only need to take three steps. 

1. Find a Lender

Many banks, credit unions and online lenders offer FHA loans. You can use a mortgage broker or search online to compare FHA lenders’ best available interest rates. You can compare all-in FHA mortgage costs between at least three mortgage lenders to find the best terms for your situation. Of course, your local bank or credit union might be an FHA lender already, so you can also compare its rates.  

Choosing a reputable and experienced lender to assist you in the mortgage process is essential. You can check lender reviews on the Better Business Bureau and with other online review sites. You can also check a lender’s years in business and whether it has received any complaints with the Consumer Financial Protection Bureau. 

2. Gather Required Documentation

The required documents may vary by lender. Common requirements include:

• Government-issued ID such as a driver’s license or passport
• Your Social Security card and/or Social Security number 
• The past two months’ pay stubs
• Tax returns and W-2s for the past two years
• Debts or liabilities that show up on your credit report 
• Bank statements that show savings for a down payment. 
• Verification of employment

You can gather and organize all the required documents to prepare when the lender requests documents.

3. Submit Your Loan Application

You have the option to submit loan applications online or in person. It’s essential to fill out all information correctly and not leave any requested fields blank. If the loan application is inaccurate or incomplete, it could delay the approval process. Be sure to include all requested information to avoid delays. 

How Long Does the FHA Loan Preapproval Process Take?

The FHA loan preapproval process typically takes five to 10 business days. This time frame can vary depending on factors such as the lender’s workload, the complexity of the borrower’s financial situation and the responsiveness of the borrower in providing all the necessary documentation. In some cases, you could get preapproval the same day. 

How to Increase Chances of Getting an FHA Loan Preapproval

You can take steps to increase your chance of FHA mortgage approval, from improving your credit score to communicating with your lender. Here are three key tips. 

1. Maintain Good Financial Habits

It’s essential to maintain a stable financial situation while awaiting preapproval. Don’t make major financial changes like applying for several credit cards or taking out a personal loan to purchase new furniture. While it can be easy to jump ahead and start planning for your future home, taking on additional debt or making other financial situations can affect your preapproval during the application process. 

2. Communicate with Your Lender

You can stay in constant communication with your lender throughout the preapproval process to ensure you provide any additional required documentation efficiently. You can also ask the lender’s advice and seek clarification to understand the FHA loan application process by contacting your loan officer. Demonstrating that you’re engaged in the loan approval process and willing to provide any requested documentation promptly can increase the chances of approval. 

3. Be Prepared to Provide Additional Documentation

Additional documentation may be required during the final underwriting process. To avoid delays, have copies of bank statements, pay stubs, tax returns and proof of other savings like retirement accounts to show lenders when requested. It’s important to be prompt and organized when providing these documents to improve approval chances and reduce delays. 

What Is the Difference Between FHA Loan Preapproval and Prequalification?

During prequalification for an FHA loan, your income, assets and credit are reviewed, and you receive an estimate of what you can qualify for. With preapproval, the scenario is run through the automated underwriting system for true approval. While both are similar, prequalification is the first step to begin assessing your home purchasing power. 

Step two is preapproval, at which point you’ll receive an offer letter from lenders that you can show to your real estate agent and sellers while negotiating to purchase a home. When you prequalify for an FHA loan, you can also estimate how much your monthly mortgage payment will be to facilitate personal financial planning.

What Happens if Your FHA Loan Preapproval Is Denied?

When your FHA loan preapproval is denied, the lender has determined that you do not meet the qualifications necessary to obtain the loan. Common reasons for denial include a low credit score, insufficient income, insufficient down payment for the credit score or a high debt-to-income ratio. 

You can ask the lender to explain the specific reasons for the denial, as this will help you identify areas for improvement. You may need to improve your credit score, reduce your debt or increase your income before reapplying for an FHA loan. 

Alternatively, you could explore other loan options or seek assistance from a mortgage professional who can guide you through the process and provide advice on how to address the issues that led to the denial. For example, a mortgage broker can help match you with a lender willing to work with you and help you find the best available interest rates. You can also search for FHA loans for bad credit. 

Buying Your New Home

With FHA preapproval, you’re one step closer to closing on your new home. While it can take up to 10 days, preapproval is important to demonstrate financial readiness to sellers and to build communication with your lender. 

With preapproval, you’ll know how much you can afford and how much you'll need to pay each month. Building a relationship with the lender now can help ensure that the closing on your new home goes smoothly. Ready to get started? You can find some of the best FHA lenders here. 

Frequently Asked Questions