You can find plenty of home loan programs if you plan to buy a home. However, if you don't have sufficient funds for your home purchase or are a first-time buyer, working with Federal Housing Administration loans might be the best option.

Remember that FHA loans have a specific pre-approval process that you must understand to qualify for the approval. Here is what you need to know about the FHA loan pre-approval process.

Pre Approval Process for FHA Loan

Find the Lender

The pre-approval process for FHA loans begins with finding a lender. Fortunately, several banks, financial organizations, and institutes offer FHA-associated loans or programs. It is always best to check the website of the Urban Development and Department of Housing to find if a particular lender provides FHA –insured loans.

Once you find the lender, discuss the requirements and eligibility criteria directly. Generally, FHA requirements are pretty lenient for first-time borrowers. Make sure you evaluate your finances t to obtain the loan once you find the lender.

Check Your Credit Score

Though FHA-insured loans are for people with imperfect credit scores, the approval process requires a good credit score. You tend to get better down payment and rates by FHA if you have higher scores.

The credit score limit to get an FHA loan is 500 though you may find some loan programs that facilitate people with lower scores than this. However, 500 is the lowest limit to reap the benefits of FHA loans. You need to pay a higher down payment (at least 10 percent) with lower scores.

To obtain the FHA loan’s full benefit, your credit limit should be 580. Reaching this limit means you can put down a 3 to 3.5 percent down payment for home purchasing. Comparatively, the limit is still lower than other down payments you put down in the market.

That means if you’re considering applying for FHA loans, consider increasing your credit scores.

Assessing Your Debts

As mentioned above, scrutinizing your finances is your lender's next step after checking your credit scores. The purpose is to determine whether you owe money to the bank or any organization.

The FHA checks your debt to income ratio to assess your financial state. The lower your debt to income ratio, the higher the chances of your loan approval. The debt to income ratio must be below 43 percent to get approval.

Fortunately, many lenders don't consider every penny you earn to estimate this ratio. Instead, they take into account some special recurring monthly payments that may include your student loan, car outstanding unpaid balance, and credit card payments.

Though they also count some other debts, their types may vary based on the structure of your payment plan and the type of your payment. The goal is to assess how much of your income goes into the debt payment.

Note that there can be a difference between the debt-income ratio FHA calculates and debt to income ratio other lenders determine. The FHA calculates student loan debt through the one percent rule and assumes that you don’t pay more than one percent of the total loan in debt.

While it is suitable for people to make significant payments, individuals with larger student loans find it problematic. Thus, a one-percent figure is beneficial for determining your loan eligibility or approval.

Evaluating Income

The reason to calculate your debt-to-income ratio is to determine your monthly income. It is one way to establish the amount of money that can be lent to you. Plus, the FHA determines the source of your income and how you will use the income in the future. That means you need to submit your income statement and verify the sources of income in it.

For instance, if you're a traditional employee, you must provide pay stubs for the last two salary periods and two-year tax records. Business owners must provide income variation to the FHA. If your source of income is other than these two, such as an annuity or trust, verify the time frame you receive the funds from the sources.

The FHA checks out all your income sources to ensure that you're financially capable of paying the down payments. It verifies all means you have used over months to deposit money in your account. You will have to submit the written statements.

All the factors mentioned above are essential for your FHA loan approval. If you don't qualify for the loan, work on these factors to apply again.