Buying your first home is an exciting milestone in life. However, the process of getting approved for a mortgage loan can be confusing and intimidating for first-time homebuyers One popular option for first-timers is the FHA loan, which only requires a 35% down payment and has flexible credit requirements. Before you start seriously house hunting, it’s important to get pre-qualified for an FHA loan to understand your true budget and borrowing power. In this comprehensive guide, we’ll walk through everything you need to know about pre-qualifying for an FHA mortgage.
What Does It Mean To Get Pre-Qualified?
Pre-qualification is the first step towards applying for a mortgage It involves providing your basic financial information to a lender to determine the approximate loan amount you may qualify for,
Getting pre-qualified is not the same as getting pre-approved. Pre-approval is the next step and involves a more rigorous review of your finances, including verification of your income, assets, debts, and credit history.
While pre-approval provides a firm commitment from the lender, pre-qualification gives you an early estimate so you can start looking at homes in your estimated price range.
Why Pre-Qualify For An FHA Loan?
Here are some key benefits of getting pre-qualified for an FHA loan specifically:
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Understand How Much You Can Borrow: The pre-qualification process gives you a realistic snapshot of what you can afford based on your income, debts, and savings. This prevents you from getting your heart set on a home that’s out of your price range.
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Compete With Cash Offers: Sellers are more likely to consider your offer seriously if you get pre-qualified. It shows them you are ready to move forward.
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Lock In Rates: Interest rates fluctuate frequently. By getting pre-qualified early, you can usually lock in a rate for 60-90 days.
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Speed Up The Process: Pre-qualification gets your documentation ready so the lender can finalize approval more quickly after you make an offer. This gives you an edge on competing offers.
FHA Loan Pre-Qualification Requirements
To start the pre-qualification process, the lender will need the following information:
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Income – Your gross annual income from all sources, such as your salary, bonuses, commissions, and any rental income.
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Assets – Your checking and savings account balances and investments that can be used for the down payment and closing costs. Retirement accounts generally cannot be used.
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Debts – Your monthly payment amounts and outstanding balances on all existing debts, such as credit cards, auto loans, student loans, child support, and any other mortgages.
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Credit History – Your FICO credit score and detailed credit report from all three bureaus. At minimum, you’ll need a 580 FICO score.
Additionally, you must be a U.S. citizen or permanent resident and plan to use the home as your primary residence. FHA loans cannot be used for investment properties or vacation homes.
Documents Needed For Pre-Qualification
Gather these documents before starting the pre-qualification process to make it faster:
- W-2s or tax returns for the last 2 years
- Recent pay stubs showing your year-to-date income
- Bank statements for the last 2-3 months
- Investment account statements
- Credit report from all three bureaus
- List of debts with outstanding balances and monthly payments
- Driver’s license or other ID
- Social Security Number
How To Pre-Qualify For An FHA Loan
Follow these steps to pre-qualify and get an estimate of your mortgage amount:
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Check your credit score and report. Make sure there are no errors on your report that could negatively impact your application. Dispute any inaccuracies.
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Determine your budget. Make sure your total monthly housing costs, including the mortgage payment, taxes, insurance, and HOA fees will fit within your budget. Shoot for keeping total housing costs below 30% of your gross monthly income.
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Calculate your savings. You’ll need at least 3.5% of the purchase price of the home for your down payment. You’ll also need 2-5% of the price saved for closing costs and upfront mortgage insurance premiums.
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Contact multiple lenders. Compare interest rates and fees to find the best FHA loan option. Credit unions and community banks are good options. You can get quotes online too.
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Complete the pre-qualification application. Provide the required documents and financial information. This can often be done quickly online or over the phone.
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Get a pre-qualification letter. This official letter states the estimated mortgage amount, interest rate, and terms you qualify for.
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Start your home search. With pre-qualification done, you can confidently start looking at homes listed in your targeted price range and make offers knowing you are prepared.
Other Tips For FHA Pre-Qualification
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Shop for mortgage rates from multiple lenders. Comparing loan estimates will help you identify the best overall deal. Don’t just look at interest rates. Compare origination fees, mortgage insurance, and lender credits too.
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Avoid taking on new debts or making major purchases during the pre-qualification process. Adding new monthly payments can impact the loan amount you qualify for.
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If you don’t qualify due to credit or income reasons, delay your home search and work on improving your credit, paying down debts, or increasing your income. Re-apply for pre-qualification in a few months after improving your financial situation.
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Ask about down payment assistance programs in your state or county. Grants and low interest loans can help cover your down payment and closing costs.
Getting pre-qualified for an FHA loan ensures you only look at homes that fit your budget and sets you up for a smooth approval process. Use this guide to understand what it takes to successfully pre-qualify and embark on your journey to affordable homeownership. With an FHA loan requiring just a 3.5% down payment, owning your own home is likely more achievable than you think if you put in the work upfront to get pre-qualified.
FHA Loan Guidelines & Requirements
- You must have a valid Social Security number and be a legal resident of the United States
- Youll need to have steady employment history
- FHA loans are only available for a primary residence
- The property must be appraised by a FHA-approved appraiser and needs to meet certain standards
- The front-end ratio (mortgage payment plus homeowners association fees, property taxes, mortgage insurance, home insurance) will need to be less than 31% of your gross monthly income
- Monthly debts (credit card payments, car payment, student loans, etc.) need to be less than 43% of gross monthly income
- Minimum 580 credit score
- Prior foreclosures need to be season over 36 months and you need to have re-established good credit
- Prior Chapter 7 Bankruptcies need to be seasoned over 24 months since the discharge date
- Prior Chapter 13 Bankruptcy – FHA allows to be not discharged as long as they have satisfactorily made 12 months of payments of the payout period
- Minimum loan amount of $175,000 required to apply*
We help make home buying easier with great FHA loan rates.
lf you meet FHA loan requirements, this is one of the best mortgage solutions for the credit-challenged and first time home buyer. FHA loan guidelines were created to help those with difficulty getting conventional loans, with lower credit score requirements, plus a low 3.5% down payment option. As long as you meet the minimum credit score, debt-to-income ratio, and other necessary eligibility requirements, you could be FHA pre-approved and pre-qualified with great FHA loan rates and on your way to home ownership. Earning the privilege to lend FHA loans is a responsibility we take seriously. Thats why as an FHA-approved bank, we adhere to a high level of lending standards.
- Start the pre-approval process – Sellers take you more serious if you are pre-approved for a loan.
- Fill out a loan application – In most cases, you will fill out the Uniform Residential Loan Application after you’ve made an offer on the house.
- Appraise the property – An FHA-approved appraiser will need to assess the market value of the property to make sure it aligns with the offer.
- Begin mortgage underwriting – The lender with work as a liaison between the borrower and the underwriting, gathering information on your financial situation, including credit score, income, and provided documentation.
- Receive a decision – If all qualifications are met, your loan application will be approved.
- Closing process – This includes reviewing the loan documents to ensure accurate information has been captured. Closing costs will also need to be paid at this time.
A minimum loan amount of $175,000 is required to apply. Exceptions include mortgage products for properties located within the Greater Kansas City metro and surrounding areas. Contact a NASB Loan Officer for details on the excluded areas and/or zip codes.
Documentation you may need for an FHA conventional loan includes but is not limited to the following:
- Two years full tax returns if self-emloyed – all pages and all schedules
- Two years W2s
- Two most recent pay stubs with year-to-date pay
- Two most recent asset statements – all pages with full transaction history
- Copy of your mortgage statement if you currently own
- Bankruptcy and discharge papers (if applicable)
- Copy of Drivers License
How to Get Pre Approved for an FHA Loan in 2024
FAQ
Can you prequalify for an FHA loan?
How long does FHA pre-approval take?
Is it difficult to get an FHA loan?
What bank is best for FHA loans?
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Company
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Forbes Advisor Rating
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Days to Close
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PNC Bank
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5.0
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45-day average
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loanDepot
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4.5
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20 days
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Guild Mortgage
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4.0
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17-day average
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Bank of America
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4.0
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30 to 45 days
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