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You’ve most likely heard the terms “pre-qualify” and “pre-approval” when it comes to getting a mortgage for your new home. What do they mean, and what’s the difference?
Your ability to qualify for a mortgage is the first step in the home-buying process. If you don’t qualify, it will be difficult to apply and get approved for a loan. If you’re looking to apply for a Federal Housing Administration (FHA) loan, there are certain requirements you can learn to estimate if you qualify for this type of loan.
Let’s dig into what FHA loan pre-qualification means, what it requires, and how to move forward through qualification, approval, and into your new home.
What is an FHA loan?
FHA loans are provided by the Federal Housing Administration and issued by FHA-approved lenders, such as Homefinity. These loans are for borrowers with low-to-moderate income. They allow borrowers to have lower credit scores and provide a lower minimum down payment than conventional loans.
The FHA is the only government agency that operates from self-generated income, which is collected from homebuyers via lenders.
Compared to FHA loans, the interest rates for conventional loans usually are higher and the requirements are stricter because they are more of a risk to lenders.
Conventional loans are the most common loan for homebuyers. These aren’t offered through a government entity but are available through private lenders, such as banks and mortgage companies. Many conventional loans are backed by two government-sponsored enterprises, though: Fannie Mae and Freddie Mac. Homefinity also can provide these types of loans.
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Checklist to pre-qualify for an FHA loan
Pre-qualifying for an FHA loan involves your loan officer evaluating your creditworthiness before they allow you to be pre-approved. Pre-qualifying is not a guarantee, but it’s an estimate of the loan amount you might be issued. Working with your lender for pre-approval can help you understand if an FHA loan is right for your situation.
To pre-qualify, you’ll need to provide the following information:
- Loan amount
- Credit score
- Employment status
- Gross annual income
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FHA loan pre-qualification requirements
An FHA loan pre-qualification is helpful to provide you with an estimate of how much you can afford to spend on a home. To pre-qualify, you need to consider the following information.
How much are you looking to borrow? Loan officers will want to understand how large of a loan you want for your home.
Pre-qualifying is less intensive than getting pre-approved, so you will simply need to know your credit score or credit card limits at this point. For pre-approval, however, loan officers will pull your full credit report, so having a solid understanding of your credit score will be very helpful moving forward.
Are you employed full time, part time, or unemployed? Are you self-employed? Loan officers will need to know your work situation to gauge if you will be able to make your monthly mortgage payments.
Gross annual income
Your gross annual income is your earnings before taxes are taken out. This is another helpful gauge for loan officers to see if you have enough income for monthly payments. This also allows them to estimate if you can provide the payments for the Mortgage Insurance Premiums (MIP) required with FHA loans, as well as your down payment.
You can use our Affordability Calculator to help you determine if you might be able to qualify* at this time. Your Homefinity loan officer can help you work through this process. If you are having trouble in any area, they can offer advice and support on how to get where you need to be to qualify.
*A pre-qualification is not an approval of credit and does not signify that underwriting requirements have been met.
Difference between pre-qualification and pre-approval
While pre-qualification is an estimate of how much home you can afford, pre-approval*is one large step closer to approval and getting your FHA loan. To be pre-approved, your loan officer has checked your credit report and verified your income and employment.
For pre-approval, you must work closely with your loan officer to fill out the application and provide them with your most recent pay stubs, W-2s from the past two years, tax returns, and proof of additional income. You will need to prove with bank statements that you can afford your down payment and closing costs.
While the credit score allowed for FHA loans can be lower than conventional loans, you still must meet the requirements. Getting pre-approved for an FHA loan means your loan officer has the full picture of your financial capabilities, and you are closer to that all-important approval.
*Pre-approval is based on a preliminary review of credit information provided to Homefinity which has not been reviewed by Underwriting. Final loan approval is subject to a full Underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.
How Homefinity can help you pre-qualify for an FHA loan
If you are concerned about pre-qualifying or pre-approval for an FHA loan, Homefinity can help you make sense of it. We will tell you the requirements you need to qualify and help you through the approval process from start to finish.
Our team will help you get on track if you’re struggling with your credit score and want advice on how to improve it quickly. We want you to get approved and in the door of your new home.
If you’re ready to get started today, please contact us. We can’t wait to help you through the process and get you home.
Homefinity is not affiliated with any government agencies. These materials are not from HUD or FHA, and were not approved by a government agency.