If you are planning on getting a house, you may have heard about pre-approval letters. This is given to you by the Federal Housing Administration (FHA) financing institution to provide you with a boost when shopping for a house. It shows sellers that you have started the steps to getting a mortgage. All you need at the moment is the right house to buy.
To get pre-approval from FHA, you need to have your credit score checked and your income and financial status reviewed. Aside from your loan application, the preapproval helps boost your mortgage underwriting process so you can go and find the right home for you and your family.
If you are looking to get pre-approved or apply for FHA loan Texas, here is your guide.
Locating a Lender
When lenders pre-approve applicants, the Department of Housing and Urban Development (HUD) will govern and set the limits and guidelines of getting a loan. If you are looking for a lender, the official website of HUD has a list of lenders you can choose from. If you have already selected a lender, you can search the lender’s name on the search webpage to check if FHA approved him or her. You can also put locations to find those near you.
It has been said again and again that the higher your credit score, the better. Well, when you are looking for a house, FHA still can accommodate you even if you have a low credit score. It allows 3.5% down payment for credit scores of around 580. Although, the minimum credit score required is 500, a lot of lenders won’t pre-approve those with a lower than 580 credit score. As such, if you find out that you have a low credit score, it is best to increase your score.
Lenders will check your source of income as well as verify the amount. But generally, you have to have at least 2 years of consistent employment income which can also come from non-job related sources. This is as long as the lender can verify it. This includes Social Security, annuity income, alimony, child support from a court order or divorce decree and pension.
Debt Does Matter
If you think your debt doesn’t matter, you’re wrong. It plays a significant role in your pre-approval. The FHA debt to income ratio is the percentage of the comparison of your debt load and gross monthly income. Today, FHA allows 31 to 50 % of DTI for those who have approximately 580 credit score.
Cash On Hand
Lastly, the lender will ask how much money you have for down payment. The amount should also cover the closing costs. With FHA loans, you can add cash gifts like yours. Also, other lenders want to see that you still have some cash left after all is done so you have something to start with once you move in.
And that’s about it for preapprovals for FHA loans. Have you found a lender yet?