Did you know that getting an FHA loan pre-approval is the best thing you can do if you’re serious about buying a home? In this blog, we’ll show you how to get pre-approved for an FHA Loan as quickly as possible. This is important, because most realtors won’t take the time to show you houses without it. And even if they do? The sellers may not accept your offer — or they’ll bump your offer for one from a pre-approved buyer. Luckily, getting an FHA loan pre-approval is simple. Just follow this guide!

Documents You Need for FHA Pre-Approval

An FHA loan pre-approval means the lender pulled your credit, evaluated your income and assets (like bank account balances), and agreed that you’re a good risk for the loan amount they approve. 

So, how do you get the FHA loan pre-approval? 

First, know that it’s possible whether you’re looking for an FHA pre-approval for a first-time home buyer or you’ve done this before. Start with an FHA loan pre-approval application. Then, the lender will ask for documents:

• Pay stubs from the last month (4 if paid weekly, 2 if bi-weekly)
• W-2s and tax returns from the last 2 years
• Bank statements from the last 2 months
• Proof of employment
• Proof of identity
• Approval to pull your credit

Keep in mind it isn’t a guarantee that you’ll get the loan — but it’s one step closer to being approved for the type of FHA loan to get the home of your dreams.

How to Master the FHA Pre-Approval Process

To get an FHA loan pre-approval, you’ll first fill out an FHA loan pre-approval application. This starts the process and lets lenders know you’re interested in an FHA loan.

How Much Should You Apply For?

Using  an FHA loan pre-approval calculator will give you a good indication, or better yet you can talk with one of our knowledgeable FHA loan experts to start the loan application process.

A Quick Tip For Your Application

When you apply for an FHA loan, have all your documents ready. This way, you give lenders the information they need to expedite their decision and determine your maximum loan amount.

You’ll also want to make sure your credit is in good standing. If you aren’t sure, pull your free credit reports at AnnualCreditReport.com to find out.

Today’s housing market moves fast — you want to get your pre-approval as quickly as possible.

How Do Lenders Decide on FHA Loan Approval?

Lenders use all the information you provided to determine if you qualify for an FHA loan. Here are a few factors they consider:

Credit Score

Have a credit score of at least 640 to qualify. You could potentially get the keys to your new home with a score of 580, but you’re less likely to get an FHA pre-approval with bad credit.

Debt-to-Income Ratio

Your DTI tells lenders how much of your gross monthly income (income before taxes) is committed each month. Ideally, lenders prefer a DTI of less than 31%.

Loan Amount

Lenders consider your income and current debts to determine how much house you can afford.

Down Payment 

Your down payment plays a role, too. The more money you invest, the less risk you pose. FHA loans require a down payment of at least 3.5%.

How Long Does the Pre-Approval Process Take?

You may not get your pre-approval instantly after following the steps to apply for an FHA loan. 

Waiting can be excruciating, but here’s the bright side…

At Good News Lending, we work with lenders who operate quickly. You could get your FHA loan pre-approval on the same day if you give the lender all the necessary documents. Without the right information, the lender can delay your pre-approval until they get what they need.

What Happens if Your FHA Pre-Approval is Denied?

FHA loans have some of the most flexible guidelines you’ll find in a home loan program. But that doesn’t guarantee your approval.  If you’re denied, it’s not the end of your homeownership dreams. Instead of giving up, reach out to a home loan professional.

Our pre-approval process at Good News Lending has one goal in mind: to get you into your next place. We’ll do the hard work upfront and help you discover how to fix the issues with your application.

The most common reasons FHA loans get denied

Once you know the reason you were denied, you can move forward, fix the issues, and apply for pre-approval again.

Lack of stable income or employment

One of the most common reasons for FHA loan denial is a lack of stable income or employment. Lenders look for a consistent employment history, usually for at least two years, to ensure that the borrower has a reliable source of income to make mortgage payments. Frequent job changes, layoffs, or a history of unemployment can raise red flags for the lender, causing your FHA loan application to be denied. It is crucial to maintain stable employment and income to enhance your eligibility for an FHA loan.

Credit score that's too low

A low credit score is another typical reason why FHA loans get denied. Although FHA loans are known for having lenient credit requirements compared to conventional loans, there's still a minimum threshold. As of September 2021, a credit score of at least 580 is generally needed for maximum financing, and some lenders may even require a higher score. A poor credit history filled with late payments, defaults, or bankruptcies will significantly decrease your chances of approval.

Not enough funds for a down payment

Insufficient funds for a down payment can also result in FHA loan denial. For maximum financing, FHA requires a minimum down payment of 3.5% for applicants with a credit score of 580 or higher. Those with lower scores will usually have to make a larger down payment. If you can't provide the minimum down payment, your application is likely to be rejected. Ensuring you have enough funds saved up for this upfront cost is key to getting your FHA loan approved.

The home's value is below the seller's asking price

Another reason that can cause your FHA loan to be denied is if the home appraisal comes in lower than the seller's asking price. FHA loans require an appraisal to ascertain the property's value and condition, and if the appraised value is below the agreed-upon sale price, the lender may not be willing to extend the loan amount that covers the deficit. In such cases, either the buyer has to make up the difference with additional funds or the seller has to reduce the price; otherwise, the loan application can be denied.

What's the Difference Between FHA Pre-Approval and Pre-Qualification?

Many home buyers confuse the terms pre-approval and pre-qualification. While you can pre-qualify for an FHA loan, it doesn’t hold the same weight as an FHA pre-approval.

This is because a pre-qualification is an estimate of what you might be able to borrow. Lenders don’t typically ask for proof of your income, assets, or employment.

Using the information you provide about your finances, the lender estimates what you can afford. An FHA loan pre-qualification is good for borrowers who aren’t sure they’re ready to buy a home or aren’t ready to look at homes yet. If you’re ready to hit the ground running, you need an FHA loan pre-approval.

What If I’m Ready to Get Pre-Approved for an FHA Loan?

If you’re ready to find your dream home, don’t do it without an FHA loan pre-approval. In that case, let the experts at Good News Lending find you the perfect lender with the perfect loan. We’ll look at your qualifying factors and help you find the best rates and terms for your situation, so you can submit a winning offer when you find your dream home.