How To Get Preapproved For An FHA Loan

If you have a lower credit score and minimal savings, you might assume you aren’t a candidate for a home loan. Fortunately, an FHA loan could be the solution you’re looking for. FHA loans come with flexible down payment and credit requirements, so they may be a great option for borrowers who may not qualify for a conventional loan.

If you want to apply for an FHA loan, you’ll start by getting preapproved. Understanding how to get preapproved for an FHA loan will help you prepare and improve your likelihood of approval.

FHA Loans: A Brief Overview

The Federal Housing Administration insures FHA loans to help borrowers who might otherwise have a hard time qualifying for a mortgage. Because the FHA backs the loan, your lender can offer better terms like flexible credit, down payment and closing cost requirements. You could qualify for an FHA loan if your credit score is above 500 and your debt-to-income (DTI) ratio doesn’t exceed 57%. However, the exact qualification requirements will depend on your lender.

If you default on your loan, the FHA is responsible for covering the remaining balance. To account for this risk, FHA borrowers must pay an upfront and annual mortgage insurance premium (MIP). The upfront MIP is a one-time fee that costs 1.75% of the total loan amount.

The annual MIP costs between 0.15% and 0.75% of the loan amount. This insurance premium lasts for the life of the loan or 11 years, depending on your down payment amount.

How To Get Preapproved For An FHA Loan: 8 Important Steps

Preapproval is the first step to taking out an FHA loan, which means your lender tentatively agrees to lend you money for a mortgage up to a certain amount. It’s not a guarantee, but it is a strong indication that you can secure the financing you need. Here are eight steps you’ll take to get preapproved:

1. Find An FHA-Approved Lender

FHA loans are only available through FHA-approved lenders. Fortunately, most banks and online lenders offer FHA financing. You can search the HUD’s lender directory to find a lender that meets your criteria. Just make sure to compare offers from several lenders. 

2. Meet The Credit Score Requirement

FHA loans come with less stringent credit requirements than conventional loans. You’ll need a minimum FICO® Score of 500 to qualify, but scores between 500 and 579 require a 10% down payment. So, if you’re taking out a $300,000 mortgage, you’ll need to pay a $30,000 down payment.

If your credit score is 580 or higher, you’ll qualify with a 3.5% down payment, which is a $10,500 down payment on a $300,000 loan. It may be worth it to take the time to get your credit score to at least 580 before applying. And a higher credit score will help you qualify for better interest rates and mortgage terms.

3. Meet The Debt-To-Income Ratio Requirement

DTI measures your total debt against your available income. It helps your lender evaluate your available cash flow and your ability to make your monthly mortgage payments.

The FHA looks for a DTI ratio of 57% or lower, and your monthly mortgage payment is included. However, lenders can use their own discretion when evaluating you for a mortgage. You may be able to find a lender that will accept a slightly higher DTI ratio.

4. Provide Proof Of Income

You’ll need to show proof of steady employment. Most lenders want to see at least 2 years of consistent employment. You can verify this information by providing your W-2, pay stubs, tax returns, and bank statements.

5. Ensure The Property Meets FHA Minimum Property Standards

Any house you’re considering purchasing must meet the FHA’s minimum property standards. The FHA sets these standards to ensure FHA borrowers are buying a home that’s safe and structurally sound.

You can verify the home meets the minimum property standards by scheduling an appraisal with an FHA-approved appraiser. The appraiser will ensure the home meets the property standards and calculate the home’s value.

6. Follow FHA Loan Limits

FHA loans also come with maximum loan limits that cap the total amount you can borrow. The FHA uses two criteria to determine the maximum loan limits—the type of property you’re purchasing and the location.

If you’re purchasing a single-family home, the national loan limit is $498,257 for 2024. If you live in an area with a high cost of living, the limit is $1,149,825. Alaska and Hawaii residents will receive a maximum loan limit of $1,724,725. The FHA’s Mortgage Limits page lets you search by county and state to determine the loan limits in your area. 

7. Set Aside Funds For A Down Payment And Closing Costs

It’s important to set aside funds for a down payment and closing costs before applying for an FHA loan. Your down payment will be based on your credit score and the total loan amount. Closing costs are typically between 3% – 6% of the purchase price.

If you can’t pay your closing costs out of pocket, you may be able to roll them into your loan. However, this will increase your monthly mortgage costs and the amount you’ll pay over the life of the loan.

8. Submit Your Application

Once you’ve completed the previous steps, you’re ready to submit your mortgage application. It’s a good idea to get preapproved with several different lenders so you can compare the rates and terms each one offers you.

When you apply for preapproval, the lender will do a hard inquiry on your credit report. This may cause a small dip in your credit score, but the effects should be minimal. If you complete all your mortgage preapprovals within a few weeks, you’ll only receive one hard inquiry on your credit report.

How Long Does FHA Preapproval Take?

The FHA preapproval timeline can vary depending on your lender and the information you gave them. On average, it takes between 7 – 10 days to get preapproved, but some lenders can approve you much faster.

To speed up the timeline, make sure you provide all the necessary documentation from the start. If your lender has to repeatedly come back and ask for more information, this slows down the process. If your lender preapproves you, you’ll receive a preapproval letter you can show sellers.

FAQs About FHA Loan Preapproval

Receiving a preapproval letter shows sellers you’re a serious candidate and increases the likelihood they’ll accept your offer. Here’s some additional information about preapproval for an FHA loan.

How long will my FHA loan preapproval last?

How long an FHA mortgage preapproval lasts depends on your lender. Most preapproval letters are valid for 60 – 90 days since your financial situation can change significantly in a 3-month time span.

Can I be denied for FHA loan preapproval?

Yes, if you don’t meet the loan requirements, your lender can deny your preapproval application. If this happens, your lender should let you know why so you can fix any issues with your application and apply again later.

Does preapproval mean I’m approved for an FHA loan?

No, preapproval isn’t a guarantee of loan approval, and your lender could ultimately choose to deny you a mortgage. But a preapproval letter means you meet the criteria to take out a loan, and there’s a good chance you’ll get approved for an FHA loan.

The Bottom Line

FHA loans are a great option for less creditworthy borrowers, thanks to the low down payment and credit requirements. You improve your odds of preapproval if you come into the process prepared.

Make sure you meet the FHA’s requirements and have all the necessary documents on hand and ready to share with your lender. If you’re ready to get started, you can apply for an FHA loan online today.