By Jake Scarbo
Vice President, Mortgage Sales (NMLS# 1861924)

How to Prequalify for an FHA Loan

Apr 26, 2023

  • First-Time Home Buyer
  • FHA Loans

For individuals who have limited credit or a unique credit history, qualifying for a traditional mortgage may not be possible. Luckily, the Federal Housing Administration (FHA) loans may be an option. These loans are offered through FHA-approved mortgage lenders and are a popular choice for first-time home buyers thanks to the low down payment and credit score requirements. They’re not just for first-time buyers, though; anyone who meets the eligibility requirements can apply, and like conventional loans, there are multiple loan types. This includes fixed and adjustable interest rate loans with various loan terms. Here are some of the prequalification requirements for an FHA mortgage:

Income Must Be Verifiable

Lenders want to see that you have a history of working for at least one to two years, preferably with the same employer. Some lenders will accept a shorter work history. Pay stubs, tax returns, and bank statements should verify your income.

Able to Pay a Down Payment

The minimum down payment required for an FHA loan is 3.5% if your credit score is 580 or higher.

Establish a Credit History

To show an established credit history, at least two types of credit account must exist. These could include a credit card, car, or student loan. 

If you’ve declared bankruptcy, you must wait one and two years before applying. In the case of a foreclosure, this waiting period extends to three years. Some lenders will make exceptions under certain circumstances.

FICO Score Requirements

The FHA sets the minimum FICO score at 580 to qualify for the loan program.  

Able to Afford Debt and Housing Payment

Lenders will specifically examine your debt-to-income (DTI) ratio to determine whether you can afford to purchase a home. The DTI measures the percentage of your income before taxes that you spend each month on debt payments, including housing expenses, credit cards, student loans, and other obligations.

A higher DTI may still be eligible with certain documented compensating factors. Many DTI calculators are available online to help you calculate your ratio.

Home Valued Within FHA Loan Limits

The home you want to purchase with an FHA loan can’t exceed the FHA loan limit, which will vary from county to county. Each county in the U.S. has a slightly different loan limit set according to regional factors. Since these limits are calculated at the county level, you’ll want to check the limits for the counties you are considering buying. The HUD website has a county-by-county breakdown for you to review.

Have All the Documentation 

When applying for an FHA home loan, you must provide your pay stubs, W-2, and other tax return documents. You must also provide a social security card. Your lender might also require other documents.

Satisfy FHA Property Requirements

Even if you’ve satisfied borrower qualifications, property requirements must still be met. The home you’re purchasing must be your principal residence and occupied within 60 days of closing by at least one borrower. The home cannot be used as an investment property or be flipped. A new home can’t be purchased within 90 days of a prior sale.

The home must undergo an FHA appraisal to assess its value and ensure that it meets minimum property standards. During settlement, the title for the home must either be in your name or the name of a living trustee.

Other Potential Requirements

As with conventional loans, the lender holds the final decision on whether to approve you for an FHA loan, meaning they may have different requirements and standards that you must meet in addition to those listed above.

Here's a calculator that can help you determine your FHA loan payments based on your purchased price, down payment, term, and interest rate. If you still have questions about how to qualify for an FHA loan or want to know more about applying, contact NASB. We are expert FHA lenders who can help you get answers. Call us at 844-334-4739 or get a free rate quote here