FHA Pre Approval Letter

Importance of Getting a Pre-approval For Your FHA Mortgage

FHA home loans are the best option to go for when you are having a strong desire of home ownership. FHA mortgages are a safe haven for home buyers who have had an unfortunate encounter with foreclosures, bad credit history and bankruptcy. Saying in general terms, anyone can apply for an FHA mortgage but not everyone can get the pre-approval for the loan. Even before you get to the pre-approval part you first need to meet the minimum criteria for a home loan. This criterion is basically for the security of the lender and so is the pre-approval process.

The important of pre-approval is emphasized because without it you cannot qualify and no lender will give you a second glance. This can set your home ownership dream down to a deadly road. The pre-approval process is advantageous to both the parties because the person taking the loan will know everything he needs to have before applying for a loan anywhere even if he gets denied for his present one. It can help you prepare before-hand if you try to get another lender to give you the loan. Moreover, this process helps you in budgeting, knowing your options and the maximum amount you can ask as a loan.

Now that we know the importance of a pre-approval it is equally important to know that what exactly a lender looks for in the pre-approval process?

  • Your Credit history: Scrutiny of your credit history will be the first target of the lender. This is to see whether you meet the minimum score required to qualify for an FHA home loan. The minimum credits score accepted by FHA lenders is about 580 or higher for 3.5% downpayment or bad credit FHA lenders require 500 for 10% down..
  • Your monthly income: What you earn is decision making parameter for lenders because it is important to them to know that whether you have the resources to pay them back or not. And what`s your most obvious resource? Your monthly income. The lender will seek proof by inspecting your tax returns and your income.
  • Your Debt: It is important to the lender that what kind of debt his borrower is under and that what affect it will have on his downpayments. For this purpose the lender looks at your debt-to-income-ratio (DTI) which refers to the comparison between your monthly incomes to the amount you spend on covering a certain debt. In case the lower your score the better because if you spend more than 45% of your total income on debt including your mortgage then you are less likely to get approved for a loan.
  • Your Assets: Your assets will go through a tight scrutiny as well because the lender will like to know that how much money or savings you have at your disposal to cover the mortgage payments and the closing cost. This will include your savings in your back account, shares etc.

After checking the above parameters, the lender will now move his target towards documentation. Scrutiny of documentation is a key player in the pre-approval process. So you need to provide all the original documents. Here is the complete list of the documents you would need to provide.

  • Your tax return statements and W-2 statements for the last two years.
  • Your social security card
  • Your employment verification letter
  • Documents related to your assets
  • Divorce decree
  • Your pay-stubs for the last two months
  • Your credit report

This pretty much sums up all that you need during the pre-approval process. It is not necessary that these will be the only documentation the lender would need; he can request additional information as well. At the end of this process you will know that you qualify for the mortgage or not and also you will know the potential amount your lender is ready to loan you. Remember a pre-approval doesn’t mean that you have completely qualified for the loan. The loan can be denied to you even after the pre-approval process.

Pre-qualification Vs Pre-approval:

Literally it would seem that these two words hold the same meaning but for FHA mortgage lenders and borrowers it has quite a gap. Getting pre-qualified is definitely not the same thing as getting re-approved. But first does it mean to get pre-qualified for a home loan. Pre-qualification is like a verbal approvable which is based on the information you have provided to your lender in a conversation.

In a broader sense it means that you are considered as pre-qualified is you met up with a lender and answered a few questions about your financial statements verbally or discussed in on the phone. It can also include filling up information in an online form provided by the lender. This process can be considered as the initial step for getting approved for a loan. Where pre-approval is done after detailed scrutiny, pre-qualification is the positive response of the lender after discussing light financial details.

Pre-qualification doesn’t carry any importance in final approval rather it’s just a green signal of having a “chance” at getting approved for an FHA home loan. Though one thing this step profits you on is that you get a chance to discuss with your lender about the upcoming process, your goals, your expectations, your chances for the approval and so forth.

Now if you come towards pre-approved then it’s a hefty procedure which includes detailed inspection of you might have or not discussed during the pre-qualification period. This step will include verification of documentation, bank statements, assets, credit history and employment verification. From this step you can also lean towards written agreements and settlement regarding monthly payments and the amount of the loan the lender can offer you.

For best results it is good that you go through both the processes in order to know where you stand. This will let you know about the kind of loan you can afford, the options you can explore, whether you are ready for this kind of commitment or not and that you can stay committed to the whole process or not. Going through these steps will put you close to getting your own house more than ever before.

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