FHA Mortgage 101: Getting a Pre-Approval for a Home Purchase
By: Rosemary Rugnetta | August 17th, 2010
August 17, 2010 (FreeRateUpdate.com) – Purchasing a home should be a pleasant experience from the time someone first visits a real estate agent to the time of closing. To achieve this, the most important step to take in the home buying process is to get a pre-approval for the mortgage. The FHA mortgage pre-approval letter can be a negotiating tool in the event that there is more than one buyer interested in a property or there are multiple offers on a house. By getting a pre-approval for a home purchase, the pre-approval letter becomes a reliable tool because it shows that the borrower has already met the credit and income guidelines for an FHA mortgage.
A pre-approval is issued by the lender and is used by the real estate agent. This pre-approval is presented to the seller when an offer is made by the borrower on the property. This letter shows the agent and seller that the buyer is approved for an FHA loan. Although it is not a final loan commitment, it can result in a faster loan closing if it has been done correctly since there should not be any surprise financing issues with the final transaction.
In order to receive an FHA pre-approval, a loan application must be completed. The potential home buyer must provide all of the necessary documentation required as follows:
2 years W2s and tax returns (if required)
1 month most recent pay stubs with year to date earnings
Letters of explanation for employment gaps or new line of work
Social Security, pension and retirement income award statements
2 most recent months bank statements, 401k statements, investment statements
Child support documentation
Rent and landlord information
Bankruptcy discharge papers (if needed)
Signed gift letters
Credit report (supplied by the lender)
There may be additional documentation required once the paperwork has been examined. In any event, FHA requires that a borrower must have a steady employment history with at least 2 years of employment at the same employer or same line of work. Employment must show a steady or increasing income. The credit history must be in good standing as FHA is interested in a borrower’s reliability for paying back the mortgage. Once these documents have been collected from the borrower, it will be reviewed and approved by an FHA underwriter with conditions. Any conditions related to financing should be addressed and cleared prior to receiving the pre-approval letter.
The FHA mortgage pre-approval letter will have an effective date and expiration date. If the loan has not closed prior to the expiration date, the documentation will need to be updated and the process will have to be repeated. Any documents and information, such as property address, appraisal, title commitment, fully signed sales contract, etc. that the underwriter has conditioned for will appear on the FHA pre-approval letter. The letter will also state the approved loan amount so that a borrower can place an offer on an appropriately priced home. In the event that any information changes, such as interest rate, employment or credit, the FHA pre-approval will not longer be valid. The underwriter must review the new documentation and recalculate the pre-approved mortgage again. When there is a signed sales contract, the appraisal and title will be ordered and all conditions will be required to be cleared, At that time, the FHA underwriter will again underwrite the mortgage for a final time prior to closing.
Getting a pre-approval for an FHA mortgage for a home purchase will make the final closing of the loan faster. It also helps both the borrower and the real estate agent know what type of home to look for and what sales price the borrower is able to afford. For these reasons, it is important for a borrower to have the necessary documentation ready prior to looking for a home so that getting a pre-approval for an FHA mortgage will be a thorough and quick experience.
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