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![Person on phone with two green semi-circles and one full circle, representing online mortgage pre-approval, against a yellow background.](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F39d7c225ee554b7386e65c5b0dd22e9d)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">Where to get a mortgage pre-approval letter online</p>

<p class="learnfont">What you need to get pre-approved with a digital lender</p>

  <p class="learnfont">When and how to apply for mortgage pre-approval </p>

  </div>
  <br>

Buying or refinancing a home is the most unique and significant transaction many people will experience in their lifetime. Where do you start? [How much can you afford?](https://better.com/how-much-house-can-i-afford) These kinds of questions may seem daunting, especially for first-time homebuyers. Building a budget is generally a good first step, and a pre-approval letter is the industry standard when it comes to understanding how much a lender might be willing to let you borrow. Luckily, getting pre-approved is easier than ever—you can do it directly from your couch [when you work with an online lender ](https://better.com/content/benefits-of-online-lender/ "when you work with an online lender ")(and it takes as little as 3 minutes when you work with Better Mortgage.)
<br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get pre-approved in as little as 3 minutes</a>  
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## Home loan online pre-approval: simplifying the home buying process

[Buying a home](https://better.com/content/buying-your-first-home-with-better-mortgage) is an exciting milestone, but it can also be a complex and overwhelming process. One of the first steps you should take as a serious home buyer is to get pre-approved for a mortgage loan.

Mortgage pre-approval is an important step that can give you the confidence and financial clarity you need as you start looking for homes.

In this blog, we will explain the mortgage pre-approval process, as well its benefits. We will also provide tips for pre-approval success and explain how Better.com can assist you in obtaining your home loan pre-approval. So, let's dive in and discover why mortgage pre-approval is your first step towards mortgage success.


## Understanding mortgage pre-approval online

Before we delve into the importance and benefits of mortgage pre-approval, let's start by understanding what exactly it means. Mortgage pre-approval is when a lender checks your finances to see how much money you can borrow for a house.

Mortgage pre-approval plays a crucial role in the home buying process, acting as the first step towards mortgage success. Here are some key reasons why mortgage pre-approval is of utmost importance:

  <li>Mortgage pre-approval tells you how much you can borrow. With a pre-approval letter, you know your borrowing power and can focus on homes within your budget.
  <li>With a pre-approval letter, you can confidently make offers. A pre-approval indicates your chances of getting a mortgage loan are higher.
  <li>Pre-approval helps you find the best lender. It allows you to compare loan options, rates, and terms from different lenders. This way, you can get the best deal for you.
  <li>A pre-approval letter can make buying a home faster. Sellers and agents like serious buyers who have already been pre-approved. With a pre-approval letter, you can expedite the home buying process, making your offer more attractive to sellers.
  <li>A pre-approval letter helps in negotiations. It shows sellers that you are more likely to receive a loan offer. This makes you a stronger candidate.

<sp></sp>

### The differences between mortgage pre-approval and prequalification

While mortgage pre-approval and prequalification may sound similar, they serve distinct purposes in the home buying process. Understanding the differences between the two can help you navigate the mortgage process more effectively. Here's a breakdown of mortgage pre-approval and prequalification:

  <li> Prequalification is an estimate, while pre-approval provides an exact amount. Please note: while a pre-approval can provide an exact amount, it’s not a commitment letter for a lender to lend you this exact amount. 
  <li> Prequalification is based on the information you provide to a lender, while a pre-approval involves a lender looking at your financial history, credit score, and other information.
  <li> Pre-approval is a more rigorous process compared to prequalification: pre-approval requires documentation and a credit check, while prequalification is usually done online and doesn't involve a thorough review of your financial information.
  <li> Pre-approval indicates a serious intent to buy, unlike prequalification: pre-approval demonstrates that you are a serious buyer, as it involves a more extensive assessment of your financial situation. Prequalification, on the other hand, is a preliminary step that gives you a general idea of your borrowing power. 
  <li> A pre-approval letter carries more weight with sellers than a prequalification letter: A pre-approval letter from a lender holds more credibility with sellers and real estate agents, as it signifies that you have already undergone a comprehensive financial review and are likely to secure a mortgage loan. A prequalification letter, on the other hand, may not carry the same weight.

<sp></sp>
## How online mortgage pre-approval works

Now that we understand the importance of [mortgage pre-approval](https://better.com/content/how-to-get-a-mortgage-approval), let's explore how the process actually works. Mortgage pre-approval involves working closely with a loan officer or mortgage lender who will guide you through the  process. Here's a brief overview of how it works:

### Key factors considered for mortgage pre-approval

During the mortgage pre-approval process, lenders consider several key factors to evaluate your financial stability. Here are some of the main factors considered for mortgage pre-approval:

  <b>Credit score:</b> Lenders assess your credit score, which reflects your credit history and payment behavior, to determine your creditworthiness. A higher credit score generally translates to better loan terms and interest rates.
 

<b> Loan amount:</b> Lenders analyze your financial situation and determine the maximum loan amount they are willing to offer you based on various factors, including your assets.
 
<b>Debt-to-income:</b> Lenders look at your [debt-to-income ratio](https://better.com/content/what-is-a-good-debt-to-income-ratio) and assess the risk of lending to you based on your financial situation.


## Benefits of home loan online pre-approval

Now that we've covered the pre-approval process, let's explore the benefits of obtaining a home loan pre-approval. Mortgage pre-approval offers numerous advantages for home buyers, including:


### Advantage in home buying negotiations

Being pre-approved for a mortgage loan can give you a significant advantage in home buying negotiations. Here are some specific benefits of mortgage pre-approval in negotiations:

  <li> Pre-approval can make you a serious buyer, strengthening your negotiation position against other buyers
  <li> It signals financial readiness, making sellers more inclined to consider your offer
  <li> It shows your financial situation has been reviewed by a lender.
  <li> It provides confidence to navigate negotiations, knowing what you can afford.
  <li> It can accelerate the loan processing time once you have an accepted offer.

<sp></sp>


## Common misconceptions about home loan pre-approval

While mortgage pre-approval offers numerous benefits, there are also common misconceptions associated with it. Let's address some of these misconceptions to ensure a clear understanding of mortgage pre-approval:

  <li> Pre-approvals do not guarantee a mortgage, regardless of circumstances: While it's a strong indicator of your ability to secure a mortgage loan, it is not an absolute guarantee.
  <li> Pre-approvals are not the same as prequalifications: Pre-approvals involve a more rigorous assessment, whereas pre-qualifications are just based on what a borrower states.
  <li> Pre-approvals do not require a hard credit check: While pre-approval requires a credit check, it is considered a soft inquiry, which does not significantly impact your credit score.
  <li> Pre-approvals are not evergreen: A pre-approval letter typically has an expiration date.

<sp></sp>
## Tips for home loan pre-approval success

Ensure that your credit report, credit history, and credit score are in good standing before seeking pre-approval. Managing your monthly debts, credit cards, and overall financial situation will enhance your pre-approval chances. Lastly, collaborating with a mortgage lender or loan officer can help you navigate the pre-approval process smoothly.


## How Better.com can help with your home loan online pre-approval

Better.com streamlines the mortgage pre-approval process with its user-friendly 100% online platform. The entire process can take as little as 3 minutes and will have no impact to your credit score.

Once the application is complete, you will get a good understanding of your buying power, alongside an editable pre-approval letter you can share with your agent or use when making offers to sellers.

## Frequently asked questions about home loan pre-approval

### Does home loan pre-approval affect your credit score?
Home loan pre-approval typically involves a soft credit inquiry, which doesn't impact your credit score. However, if you apply for multiple pre-approvals within a short period, it can slightly lower your score. It's important to limit the number of applications and choose a reputable lender to minimize any potential impact on your credit.

### Can you be denied a mortgage after pre-approval?
It is possible to be [denied](https://better.com/content/mortgage-application-denied) a mortgage after pre-approval. Pre-approval is based on the information provided at the time of application, but it does not guarantee final approval. Factors such as changes in financial circumstances or property appraisal could result in denial. It's important to maintain financial stability and avoid any major changes during the home buying process.

### How long does it take to get pre-approved for a home loan?
The timeframe for getting [pre-approved](https://better.com/content/how-to-get-pre-approved-for-a-mortgage) for a home loan varies but typically takes a few business days. With Better's pre-approval, however, the process can take as little as 3 minutes.

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get pre-approved in as little as 3 minutes</a>  
 </div>
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## Next steps after home loan pre-approval

After you get your [pre-approval letter](https://better.com/faq/pre-approval-letters/how-do-i-get-a-pre-approval-letter), you can start (or continue) or home search with a clear price range in mind. You can edit your pre-approval letter in your Better Mortgage dashboard at any time, so if you are looking to put in an offer, make sure to include your edited pre-approval letter to strengthen your position as a buyer.

Once you have an accepted offer, you can visit your dashboard to start uploading the necessary documentation for the closing and financing process — getting you into your home sooner!

## The bottom line: why mortgage pre-approval online matters

In conclusion, getting pre-approved for a home loan is a crucial step in the home buying process. It provides you with a clear understanding of your financial capabilities and helps you set realistic expectations when searching for your dream home. Not only does it give you an advantage in negotiations, but it also accelerates the loan processing time, allowing you to close on your new home faster.

To get your pre-approval in as little as three minutes, click <a href="https://better.com/start" title="here">here.</a>

<br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get pre-approved in as little as 3 minutes</a>  
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Want to use an online lender to buy or refinance your home? Get pre-approved for a mortgage online easily with Better Mortgage, on your schedule and terms.

Online mortgage pre-approval: Your first step to success

Blog post image for Online mortgage pre-approval: Your first step to success

![A comprehensive guide to a second home loan](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F5fd9119897cd43f988df2db8824d200b)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">Second homes, or vacation homes, must meet specific guidelines to be eligible for a second home loan.</p>

<p class="learnfont">Second home mortgage qualifications are typically more strict than for a primary residence.</p>

  <p class="learnfont">Beyond a mortgage, several alternative financing options can help you pay for your second home.</p>

  </div>
  <br><br>
<h2 style="margin-bottom:24px;">Table of contents</h2>
<ul>
    <li><a href="#1">What is a second home mortgage loan?</a></li>
    <li><a href="#2">Things to Consider When Taking Out a Mortgage Loan for a Second Home</a></li>
    <li><a href="#3">Second home loan mortgage requirements</a></li>
    <li><a href="#4">Alternative ways to finance a second home</a></li>
    <ol style="margin-left:24px">
        <li><a href="#5">Home equity line of credit (HELOC)</a></li>
        <li><a href="#6">Cash-out refinance</a></li>
    </ol>
    <li><a href="#7">How to Buy a Second Home With a Mortgage: The process</a></li>
    <ol style="margin-left:24px">
        <li><a href="#8">Get pre-approved for a second home mortgage loan</a></li>
        <li><a href="#9">Work with a local agent</a></li>
        <li><a href="#10">Hunt for your new home</a></li>
        <li><a href="#11">Make an offer</a></li>
        <li><a href="#12">Close on your mortgage</a></li>
    </ol>
    <li><a href="#13">Get a second home loan with Better Mortgage</a></li>
</ul>
<br>

If there’s a special place in your heart you frequently visit, then you may be ready to ditch hotel rooms and rentals and buy a more permanent place of your own. Second homes can serve a variety of purposes, from vacation spots to practical dwellings in prime locations.

Here’s how second homes differ from other property types, how second mortgages work, and what you can expect from the buying process once you’re ready to get started.

<div id="1"><br></div>

## What is a second home mortgage loan?
A second home loan is a mortgage used to finance a secondary or vacation residence. 

Second home loans differ from those used for [primary residences and investment properties](https://better.com/content/primary-residence-second-home-or-investment-property-whats-the-difference/) because each property type represents a different level of risk for lenders. For instance, because you’re not dependent on your second home as a primary place to live, lenders assume you may be more likely to stop making mortgage payments if you fall on hard times. 

For a property to be [considered a second home](https://better.com/content/buying-a-second-home/) and deemed eligible for a second home loan, it must meet the following guidelines:

- The home must be a single-unit dwelling.
- The property must be suitable for year-round occupancy, even if you only intend to use it for part of the year.
- You’re required to have exclusive use of the property, meaning no long-term leases or timeshare scenarios.
- The home may not be under the control of a property management company.
- In most cases, it must be located a certain distance from your primary residence.

You may be able to rent out a second home when you’re not using the property, but rentals are typically restricted to 180 days per year. And any projected rental income cannot be considered for mortgage qualifying purposes.

[Unlike second property mortgages, investment property mortgages’](https://better.com/content/second-home-vs-investment-property) allow for even longer rental terms (year-round), but also come with the toughest qualifying guidelines because they tend to have higher delinquency rates than other occupancy types. Lenders will typically expect that you are truly using the property as a second home and not a full investment property that allows for tenancies longer than 180 days.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started with Better Mortgage</a>  
 </div>

<div id="2"><br></div> 

## Things to consider when financing a second home
While [purchasing a second home](https://better.com/content/buying-a-second-home/) is an exciting adventure, financing requirements can be a bit more strict than those for a primary mortgage. Second mortgages also tend to come with higher interest rates because of the increased risk they represent to lenders.

<div id="3"><br></div>

## Second home loan mortgage requirements

Here’s what your typical mortgage requirements [qualify for a second home loan](https://better.com/content/buying-a-second-home/) are:

- At least 20% of the purchase price as a down payment
- A lower debt-to-income ratio, usually less than 43%
- A good-to-excellent credit score
- Proof of enough cash reserves to cover several months’ worth of mortgage payments

<div id="4"><br></div>

## Alternative ways to finance a second home
If you think it will be a challenge to get a second mortgage based on the requirements above, or you’d prefer a different way to pay, there are other alternatives to consider. These options will allow you to leverage the equity you’ve built up in your primary residence, and use it toward your second home.

<div id="5"><br></div>

### Home equity line of credit (HELOC)
A [home equity line of credit](https://better.com/content/when-and-why-would-i-need-second-mortgage) allows you to borrow against the equity from your primary home on an as-needed basis and pay it off with interest over time. It works similarly to a credit card where you can borrow up to a specified credit limit, and the amount gets replenished as you make payments. 

Keep in mind that because HELOCs are secured by your primary residence, your lender may be able to foreclose on your home if you stop making payments.

<div id="6"><br></div>

### Cash-out refinance
A [cash-out refinance](https://better.com/content/guide-to-cash-out-refinance) is similar to a traditional refinance in that you replace your current primary mortgage with a brand new one. However, with a cash-out refi, you tap into your current home’s equity to free up extra cash for your new second home. 

Of course, this will add to your existing mortgage balance by increasing the amount you owe, which may result in a higher mortgage payment. Also, when you refinance, you typically reset the payoff clock on your mortgage, especially if you’re getting a new 30-year home loan, so going this route for a second home may take you longer to pay off your first mortgage. 

<div id="7"><br></div>

## How to buy a second home with a mortgage: The process
If you decide to move forward with a second home loan, then here are the steps you can expect from the homebuying and mortgage process. 

<div id="8"><br></div>

### Get pre-approved for a second home mortgage loan
Before you start shopping around and going to open houses, you’ll want to confirm [how much you can afford](https://better.com/how-much-home-can-i-afford) with Better Mortgage to spend. A [pre-approval](https://better.com/content/how-to-get-pre-approved-for-a-mortgage) can give you an idea of the amount you’ll be approved to borrow. 

Not all lenders offer second home financing. But luckily, Better Mortgage does! With our online process, you can get pre-approved in as little as 3 minutes, without affecting your credit score. 

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started with Better Mortgage</a>  
 </div>

<div id="9"><br></div>

### Work with a local agent
Once you’ve been pre-approved, you’re ready to connect with a [Better Real Estate Agent](https://better.com/with/find-an-agent). Because you’ll likely be buying a second home in a different area from where you currently live, it’s a good idea to interview a few local agents. They should be able to answer your questions about various neighborhoods, traffic patterns, and local events and help guide you through your search.

<div id="10"><br></div>

### Hunt for your new home
After connecting with a [Better Real Estate Agent](https://better.com/with/find-an-agent), it’s time for the fun part: shopping for homes. Think about taking a trip to the area where you want to buy and asking your agent to set up multiple showings to make the best use of your time.

<div id="11"><br></div>

### Make an offer
Once you’ve found the perfect second home, it’s time to [make an offer](https://better.com/content/how-to-make-an-offer-on-a-home). You’ll work with your agent to decide how much to offer, draw up the paperwork, and negotiate with the seller. If your offer is accepted, you’ll be ready to move on to the last step in the process.

<div id="12"><br></div>

### Close on your mortgage
[Most homes close within 1-2 months](https://www.forbes.com/advisor/mortgages/how-long-does-it-take-to-close-on-a-house/ "external") of when the seller first accepted the offer. During this time, you’ll have any requested inspections, receive an appraisal report, complete your mortgage documentation, and attend a final walk-through.

Then, you’ll be ready to head to closing where you and the seller will sign paperwork and your lender will send over the necessary funds. At the end, you’ll be handed the keys and officially be the proud owner of a second home and you can close 10 days faster than the industry average with Better Mortgage.

<div id="13"><br></div>

## Get a second home loan with Better Mortgage
Buying a second home is an exciting opportunity. But before you dive in, it helps to know exactly how much second home you can afford. 

Our pre-approval process takes as little as 3 minutes and can give you the confidence to make an offer on your second home.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started with Better Mortgage</a>  
 </div>

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Thinking of buying a vacation home? Find out the requirements the property must meet to be eligible for a second mortgage. 

A Comprehensive Guide to a Second Home Loan

Blog post image for A comprehensive guide to a second home loan

A comprehensive guide to a second home loan

![Two Semi Circles Inside Dark Green Box: One of Person On Phone Reviewing Document and One of a House](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F11dbcc29890841259334f642f25796d9)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">What home equity is,  how you earn it, and different options for tapping into it
</p>

<p class="learnfont">The difference between home equity loans, home equity lines of credit, and cash-out refinances</p>

  <p class="learnfont">How to determine which home equity option is right for you</p>

  </div>

<h2>Deciding between home refinance vs home equity loan? This guide will help you understand the nuances and benefits of each option, enabling you to leverage your home equity effectively.</h2>

You worked hard, saved up, and bought your dream home. You’ve been consistently paying your mortgage and now you're starting to think about new financial goals—like home renovations, [debt consolidation](https://better.com/content/cash-out-refinancing-gives-you-options/), or even putting money toward your child’s college tuition.

But if you’re diverting the majority of your cash flow to mortgage payments, it might not leave much left over to cover these other goals. Luckily, there’s a way to leverage your [home itself](https://better.com/content/cash-out-refinancing-gives-you-options/) and generate  liquid assets (aka, cash)—this can be done by tapping into your home equity. Discover the nuances of home refinance vs home equity loan options and how using equity to refinance can turn your home's value into cash.

<br>
 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get Pre-Approved</a>  
 </div>
<br>

<h2>What is home equity and how to earn it</h2>

Your home equity is the portion of your home that you own—you can calculate this by measuring the value of your home minus the amount of money you still owe on your mortgage. For example, if your home is worth $250,000 and your current loan balance is $150,000, then you have $100,000 in home equity:

![Chart with Equation and Example Figures: Estimated Home Value - Outstanding Mortgage Balance = Home Equity](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F7d403c6e828045beb7e4fd8bfd01d01a)

There are a number of ways your home equity can grow. The first and most obvious way to grow your home equity is by making your monthly mortgage payments.  Every time you make a mortgage payment and reduce the outstanding principal balance of your loan, you essentially “buy back” a portion of your home’s value from your mortgage lender.

Your equity can also increase if the [appraised value](https://better.com/content/can-messy-home-affect-appraisal/) of your home goes up. The easiest way to make this happen is through home improvements and renovations, but it can also occur naturally over time housing appreciation and housing market fluctuations. Whatever the reason, when the value of your home increases, the difference between that value and your mortgage loan balance also gets bigger, and the difference is your earned home equity.

<h2>So, how do you turn home equity into cash?</h2> 

There are 3 main ways you can access your home’s equity: Taking out a home equity loan (HEL), opening a home equity line of credit (HELOC), or doing a cash-out refinance. Here’s what you need to know about each scenario, and how to decide which one is the best fit for your financial situation.

<h2>Tapping into your home equity with a HEL or HELOC</h2>

Home equity loans and home equity lines of credit are both [second mortgages](https://better.com/content/when-and-why-would-i-need-second-mortgage/) that use the equity in your home as collateral. However, there are some key differences between them:

<h4>Loan terms</h4>

A home equity loan is a second mortgage with a separate term and repayment schedule from your existing mortgage. HELs typically offer repayment terms of 15 or 20 years. You can repay the balance early without penalty and once you finish paying it off, the loan is closed.

A home equity line of credit is a second mortgage with a separate term and repayment schedule from your existing first mortgage, but unlike HELs, HELOCs allow you to draw cash as needed rather than in one lump sum. These cash draws are available for the first 10 years of the loan, which is called the “draw period.” After that, there is a 20-year repayment period when the credit line is no longer available and you’ll pay back the balance of the loan. You can also choose to repay any portion of the balance at any time without penalty and still access the credit line within the draw period.

<h4>Interest rates and closing costs</h4>

The interest rate you lock in for your home equity loan is fixed—meaning you can’t renegotiate down the line. HEL rates are typically higher than 30-year fixed-rate mortgage rates, but closing costs for these loans are substantially lower because there are  fewer operational and processing costs and the loan amounts are smaller.

Home equity line of credit interest rates can fluctuate according to changes in the U.S. Prime Rate throughout the life of the loan. However, you’ll likely pay very little or even nothing in closing costs. Even with the fluctuating interest rate,  it may still be more cost-effective to use a HELOC for major purchases than charging them to a credit card. Check HELOC terms carefully, as some lenders offer the option to convert to a fixed-rate during the repayment period.

<h4>Receiving and using funds</h4>

When you get a home equity loan, you’ll receive the loan disbursement in full as one lump sum, which is wired to a bank account of your choice. From there, you have the freedom to spend or save the money  in any way you choose in whatever time frame you decide.

 A home equity line of credit works differently. A line of credit lets you withdraw funds at any time and for any purpose during the 10-year draw period. You may receive a checkbook or a debit card that gives you access to the credit line. There are no restrictions on how or when you use the money once it’s drawn.

<h2>Using equity to refinance: What you need to know</h2>

Using equity to refinance can be a strategic move for homeowners looking to consolidate debt If you’d rather not take out a second loan on your home, you can access your home equity with a cash-out refinance. Here’s how it works:

<h4>Loan terms </h4>

With a cash-out refinance, you essentially take out a new mortgage greater than the balance of your existing loan, but less than your home’s market value. This allows you to pay off the remaining balance of your existing mortgage and “cash out” your additional home equity. The new loan will result in a new interest rate and loan term, along with a new repayment schedule—typically somewhere between 15 and 30 years depending on the loan you choose. Keep in mind that acash-out refinance may be subject to, prepayment penalties; while it’s not common, it depends on the lender and loan so make sure you factor that into the cost of your refi if applicable.

<h4>Interest rates and closing costs</h4>

Cash-out refinance loans may offer [fixed or variable interest rates](https://better.com/content/what-is-an-arm/). While closing costs are higher than both the HEL and HELOC options, it might be cheaper overall to leverage your equity through a cash-out refinance. Making payments on a single loan may be substantially more manageable than making payments on your original mortgage plus the second mortgage (HEL or HELOC) combined. To compare the costs of both options, calculate how long it will take you to break even on your cash-out refinance. Also look at the monthly payment amounts to make sure you have the budget capacity to manage the extra debt. 

<br>
 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get Pre-Approved</a>  
 </div>
<br>

<h4>Receiving and using funds</h4>

Similar to a home equity loan, a cash-out refinance offers you a lump sum at closing. Your new loan pays off your existing first mortgage and then disburses the difference in the remaining funds (the “cash-out”) as a check or into a bank account of your choosing. You may spend or save loan proceeds in any way you choose in whatever time frame you decide.

<h2>Understanding how much you can borrow</h2>

Lenders will usually allow you to borrow up to 80% of your equity with a cash-out refinance and between 80 to 90% of your equity with a HEL or HELOC. 

![Step 1 and Step 2 on How to Calculate Maximum Amount of Equity That Could Be Borrowed, and Total Amount You Can Borrow](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F2407bf4a56f949799edb8038d4cb8c91)

So, using the same numbers from the original example, if your home is worth $250,000 and you have an outstanding mortgage balance of $150,000, then you could end up with around $62,500 if you took the maximum loan amount (85% of total equity in this example):

![$250,000 x .85 = $212,500 and $212,500 - 150,000 = $62,500](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F909a96211cd44383b1e819cd4cb75516)

This is a basic example for illustration purposes. Your final amount may be less due to closing costs or any other expenses associated with each loan.

<h2>Cash out refinance vs HELOC vs refinance</h2>

Although each of these 3 options allow you to tap into the equity of your home, their features and terms vary. Here is a [heloc vs cash out refinancing calculator](https://better.com/heloc-vs-cashout-refi-calculator) that can help with your decision making. 

![Chart with Green Checks Showing the Benefits that Come with a Home Equity Loan, HELOC, and Cash-Out Refinance](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F6bafc65d4ba44db0825e136a70ca2bbc)

The best loan for you will depend on your needs and your financial circumstances, but there are certainly pros and cons to each option. Take a look at the following breakdown of advantages and disadvantages to see how they might impact your decision:

<h4>Pros and cons: Home equity loan</h4>

<strong>Pros:</strong> 

- Fixed interest rate and predictable payments
- Closing costs may be lower than a cash-out refinance of your first mortgage

<strong>Cons:</strong>

- Loan is closed once paid, no reusable credit line 
- Typically comes with higher rates than a cash-out refinance and higher closing costs than a HELOC 
- Additional payment on top of your monthly mortgage, and adds a lien to your property behind your first mortgage lien

<h4>Pros and cons: Home equity line of credit</h4>

<strong>Pros:</strong>

- Flexibility to use available credit as needed, and only pay interest on the money you use 
- May offer interest-only payments during the draw period

<strong>Cons:</strong>

- Variable interest rates could mean costs go up over time
- Easy access to cash may tempt you to overspend, if you’re not disciplined
- Creates an additional payment on top of your monthly mortgage, and adds a lien

<h4>Pros and cons: Cash-out refinance</h4>

<strong>Pros:</strong>

- Usually the lowest interest rates compared to HELs or HELOCs 
- If you plan to stay in your home for a while, may be more cost-effective over time depending on the break-even point
- You will only have to make one mortgage payment
- Pays off and replaces existing first mortgage; assumes place as a new single lien 

<strong>Cons:</strong>

- Closing costs may be a bit higher
- Lenders may not allow you to take as much cash against your equity (~80% vs. 85-90% with a HEL or HELOC)

<h2>Which home equity option is right for you?</h2>

Among HELs or HELOCs and cash-out refinances, you may find that one option serves you better than the others. Here are a few scenarios to consider:

<h4>When you know exactly how much money you need, and it’s a small amount:</h4> 

If you don’t need all your available home equity, or if you’d be tempted to overspend by a HELOC’s open access to funds, then a cash-out refinance or home equity loan (HEL) might be best. Comparing the costs, payment structure, and different [break-even points](https://better.com/content/refinance-calculator/) between the two loans will tell you which is the smarter move.

<h4>When your plans are uncertain, and you want flexibility:</h4> 

If you don’t know the specific dollar amount you will need or prefer to have access to cash as you need it, then a HELOC may work best for you. While rates are variable, they are substantially lower than credit cards, and may be convertible to a fixed rate during the repayment period, depending upon the lender. 

<h4>When you need a large sum and plan to stay in your home for a while:</h4>

In this scenario, a cash-out refinance could be the best option. If you can snag a significantly lower interest rate, you might be able to offset the  higher closing costs over the long term. Not only that, but by consolidating your original mortgage and your home equity withdrawal, you’ll only have to worry about a single mortgage payment each month.

A cash-out refinance can be especially beneficial if mortgage rates have dropped since you took out your original mortgage or [refinanced previously](https://better.com/content/how-often-can-you-refinance-your-home/). This can lower your cost of borrowing and allow you to access cash from your home equity at the same time. Win-win! Enter your details, a new interest rate, and loan type in Better Mortgage's [cash-out refinance calculator](https://better.com/content/cash-out-refinance-calculator) to see how much you can cash out.

Want to get your personalized refinance rates and start planning your financial future? Check your rates today.

#### More questions? Related FAQs

- [What type of refinance loans does Better Mortgage offer?](https://better.com/faq/refinancing-your-mortgage/what-type-of-refinance-loans-does-better-mortgage-offer/) 
- [How will I get my cash out funds?](https://better.com/faq/title-and-settlement-services/how-will-i-get-my-cash-out-funds/) 
- [Is a cash-out refinance right for you?](https://better.com/content/is-a-cash-out-refinance-right-for-you/) 
- [What closing costs can I expect when I refinance?](https://better.com/faq/refinancing-your-mortgage/what-closing-costs-can-i-expect-when-i-refinance/)

<br> <br>

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 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get Pre-Approved</a>  
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Want to access the equity in your home? You have 2 options: taking out a second mortgage or doing a cash-out refinance. Let’s compare the benefits of both.

Home Refinance vs Home Equity Loan: Key differences

Blog post image for Home Refinance vs Home Equity Loan: Key differences

![Two people reviewing information on a laptop and a piece of paper, learning how to get a mortgage approval.](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fe9fddf8b52174cb38f926c9d54534a0a) 

  </div>
  <br><br>

Anyone who’s not one of the lucky few to buy a home with cash will need to get approved by a lender for a mortgage. The first thing to know about a mortgage approval is there’s no single moment of ‘approval’ throughout the process. Instead, there are multiple approvals that increase in verification and certainty as you get closer to buying a home. 

The ease and [speed of approvals](https://better.com/content/home-buying-process-timeline) can vary greatly from lender to lender, so keep this in mind as you shop around. As a general rule of thumb, the stronger and faster the approval, the better. Stronger approvals can increase your chances of winning an offer and help give you peace of mind that you’ll get the loan.

In this post, we’ll break down the different types of buyer approvals and when and how to get them. 

## What is a mortgage approval? <br> 

A mortgage approval is the process by which a lender evaluates a borrower's financial and creditworthiness to determine if they are eligible for a mortgage loan for specific terms and conditions of that loan, like rate and loan term length. 

Mortgage approval is a crucial part of the homebuying process, as it signifies that the lender is willing to provide the borrower with the funds needed to purchase a home, subject to certain conditions and requirements.

The three main types of mortgage approvals we’ll review here are pre-approval, verified approval, and conditional approval. 

## What is a mortgage pre-approval? <br>

A mortgage pre-approval is an estimate of what a lender is willing to lend you. It’s based on your income, assets, debts, and credit profile, as well as the loan term, (e.g. 30-year fixed, 15-year fixed), down payment, property type, and estimated interest rate, property taxes, homeowners insurance.

Once you’re pre-approved, lenders will [issue you a letter](https://better.com/faq/pre-approval-letters/how-do-i-get-a-pre-approval-letter) stating the loan amount you are pre-approved for. One thing to keep in mind is that your letter will often show the loan amount that you think you’ll need to borrow instead of your maximum pre-approval amount. This is because you typically include the letter when you submit offers, and it can weaken your negotiating power to show sellers the maximum you can afford. 


### When should I get a mortgage pre-approval? <br> 

It’s recommended that you get pre-approved before you start shopping for homes to get a sense for your home buying budget, view homes within that budget, and show sellers that you’re a serious buyer who can afford the home. 
 

### How to get a mortgage pre-approval? <br> 

To issue you a pre-approval, lenders will collect information on your income, assets, and debts. Because pre-approvals are not standardized across lenders, the information and documentation you need to provide will also vary by lender. 

At Better Mortgage, your [pre-approval](https://better.com/content/where-and-how-to-get-a-mortgage-pre-approval-online) is based on stated income and assets and a soft credit pull. This will never impact your credit score, so anyone who is curious about their affordability can get a pre-approved estimate at any time. 

### Is my mortgage pre-approval final? <br> 

The more accurate you are with your inputs on income and assets, the more accurate your pre-approval will be, but a pre-approval is not final and is only intended to give you an estimate of how much you can borrow. To get increased certainty around how much you can afford, we recommend getting a verified approval.

<br>
<div style= "background-color:#F0F7F1;padding: 24px 42px; color:#292B29; border-radius: 12px"  >
<h3 style="font-weight:bold;">Three Minute Pre-Approval
</h3>
<p>
At Better Mortgage, our <a style="color:#292B29; " href="https://better.com/start">pre-approval process </a> is 100% digital and takes as little as three minutes. At the end of pre-approval, you’ll see your maximum estimated loan amount. Plus, you can edit your letter 24/7 in your dashboard to reflect any loan amount within your maximum that you need.
</p>
</div>
<br>

## What is a mortgage verified approval? <br> 

A verified approval also shows how much a lender is willing to lend you for specific loan terms, but unlike a pre-approval, it’s [fully underwritten](https://better.com/content/underwriting-process) by an underwriter. 
<br>

### When should I get a verified approval? <br> 
 
Verified approvals are not required in the mortgage process, but can be extremely impactful before you start making offers in order to stand out against competing bids. 

Verified approvals can increase your likelihood of winning an offer because sellers want confidence that the offer they accept won’t fall through. A verified approval gives a seller certainty that their buyer will get the loan as long as the buyer’s finances don’t change during the mortgage process, and that everything with the house, like appraisal and title, is completed successfully.

 ### How to get a verified approval? <br> 

In order to issue a verified approval, lenders will need to verify your income, assets, and credit. This will involve a hard credit check, employment verification, and a review of certain documents. The exact set of documents will vary based on each person’s financial situation, but typically include: 

<li> W-2s
<li>  Tax returns 
<li>  Pay stubs 
<li>  Bank statements</li>

<br>

#### Is my verified approval final? <br> 

While a verified approval is an official document telling you how much a lender will let you borrow, your loan is not guaranteed. You can lose your approval if your financial situation changes. For example, your qualification could be impacted if you lose your employment or take out a new loan during the mortgage process that impacts your credit and/or debt-to-income ratio.

Additionally, any approval is conditional upon the home you buy also meeting certain requirements, like appraising at the amount you have placed an offer for, and clearing title to confirm that no one else has an ownership claim to the property. At the time you get a verified approval, you may or may not have a specific home address, and appraisal and title don’t start until after you have an accepted offer, so it is not final.

#### What is a debt-to-income ratio?

Your [debt-to-income ratio](https://better.com/content/what-is-a-good-debt-to-income-ratio) (DTI) is your monthly debt payments divided by your gross monthly income. The highest DTI you can have and still get approved for a conforming loan at Better Mortgage is 50%. Let’s say your monthly debt payments are $3,800 and gross monthly income is $8,000, so your DTI is 47.5%. If you take out an auto loan at $300/month, your debt to income ratio would increase to 51.25% ($4,100 / $8,000 = .5125) and potentially make you ineligible for the mortgage. 

<div style= "background-color:#F0F7F1;padding: 24px 42px; color:#292B29; border-radius: 12px"  >
<h3 style="font-weight:bold;">One Day Verified Approval
</h3>
<p>
While this process can take weeks with traditional lenders, at Better Mortgage we offer verified approvals in 24 hours or less for qualifying borrowers.¹
</p>
</div>
<br>

## What is mortgage conditional approval? <br>

Conditional approval is a binding agreement from your lender approving you for specific mortgage terms on the home you are buying. Like a verified approval, it means your finances have been fully underwritten. The key differences are that it is always for a specific home and is issued after you’ve made an offer. 

At this point, the steps left until you close are related to verifying that there are no issues with the items like home inspection, appraisal, or title. 

### When will I get conditional approval? <br> 

Conditional approval happens after you have a signed purchase contract if you’re buying, have locked a rate, and your finances have been underwritten by an underwriter. 

### How to get a conditional approval? <br> 

Conditional approval is a standard step in the mortgage underwriting process. In order to get a conditional approval, you will apply for a mortgage, lock a rate, and start underwriting. 

### Is my conditional approval final? <br>

Same as with a verified approval, a conditional approval is not a guarantee you will get the loan and is still contingent upon a successful appraisal and title search. During this period, it’s crucial that you maintain your finances and avoid taking out any lines of credit or loans. 

<br>
<div style= "background-color:#F0F7F1;padding: 24px 42px; color:#292B29; border-radius: 12px"  >
<h3 style="font-weight:bold;">One Day Conditional Approval
</h3>
<p>
Conditional approval can take weeks with traditional lenders. At Better Mortgage, we deliver you a conditional approval via a commitment letter in as little as 24 hours with <a style="color:#292B29; white-space:nowrap;" href="https://better.com/b/one-day-mortgage"> One Day Mortgage</a>.²
</p>
</div>
<br>


## Pre-approval vs verified approval vs conditional approval <br>
![Mortgage pre-approval vs verified approval vs conditional approval table comparison](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F1e9290023cfa4b2ca59f33fc20842057) 

## Start the mortgage approval process today <br>

At Better Mortgage, we’ve built technology that no other lender has, to deliver our customers mortgage approvals faster than anyone else we’ve seen. 

<li>  3 minute pre-approval: Get your pre-approval letter and custom rates online without any impact to your credit </li>
<li> One Day Verified Approval: Make competitive offers by getting an underwritten approval in 24 hours¹ </li>
<li> One Day Mortgage: Go from accepted offer to binding conditional approval via a mortgage commitment letter in one day²</li>


 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get pre-approved today</a>  
 </div>

<p class="legal" style="margin-top: 40px">  Disclaimer: This post does not constitute an endorsement or recommendation of Better Mortgage Corporation; Better Real Estate, LLC; Better Cover, LLC; Better Settlement Services, LLC; or their services. Better Cover is solely responsible for homeowners insurance services. Better Mortgage is solely responsible for making all credit and lending decisions with respect to mortgage loans. 
<br>
 ¹ <a class="textlink" href="https://better.com/b/One-Day-Verified-Better-Approval-Letter-Terms-and-Conditions"> See One Day Verified Approval terms and conditions </a> 
<br>
²Better Mortgage’s One Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation to Better Mortgage within 4 hours of locking a rate on a mortgage loan the opportunity to receive an underwriting determination from Better Mortgage within 24 hours of their rate lock. The underwriting determination is subject to customary terms, including fraud and anti-money laundering checks, that take place pre-closing and which may trigger additional required documentation from the customer. Better Mortgage does not guarantee that initial underwriting approval will result in a final underwriting approval. <a class="textlink" href="https://better.com/with/one-day-mortgage-terms"> See One Day Mortgage Terms and Conditions. </a>

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Explore pre approval, verified approval, and conditional approval stages, what lenders verify at each, and how faster approvals strengthen home bids today.

Mortgage approvals: from pre-approval to conditional

Blog post image for Mortgage approvals: from pre-approval to conditional

![Purple Image with an Ellipse with the Front of a Condo Within and a Half Golden Circle to the Right](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F4e50b45919444ef781f46d18a8f88d08)

# Discover how FHA condo approvals work, including loans and eligibility criteria. 

Dive into our blog for all the details.

## What is FHA condo approval and why is it necessary?

FHA condo approval is a certification process that allows condominium projects to become eligible for FHA-insured loans. It ensures that the condo project meets certain standards and requirements, providing assurance to lenders and buyers that the property is financially stable and a good investment.

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">The kinds of condos you can buy with an FHA loan</p>

<p class="learnfont">How to qualify for an FHA loan</p>

  <p class="learnfont">What to do if the condo you want isn’t FHA approved</p>

  </div>
  <br><br>

If mowing the lawn, cleaning the gutters, or washing windows isn’t your idea of a fun weekend activity, a condo may be the right home for you. Condos typically cost less than single-family homes, you’re only responsible for maintaining the interior, and they’re often located close to amenities. In fact, larger condominium neighborhoods may even have shared amenities such as swimming pools, pet parks, and even golf courses. If you’re a homebuyer with a smaller down payment, lower credit score, or higher DTI, an FHA loan could be the way to make homeownership happen. Additionally, condo owners pay condominium association dues for the upkeep of shared common areas, such as garages, pools, outside hallways, gyms, and clubhouses.
Before you make the big decision to let a specific condo steal your heart, it’s important to know about the FHA condo approval process. Not all condos are available to homebuyers with an FHA loan because FHA loans are insured by the Federal Housing Administration (FHA) and there are strict payment requirements for the kinds of condos the FHA will approve. If a condo doesn’t make the FHA’s list, you won’t be able to buy it with an FHA loan. So let’s dig into which condos are FHA approved, how to get an FHA loan, and what to do if the condo you want isn’t on the FHA’s list.

## What is an FHA approved condo?

For a condo to be approved for an FHA loan it must be on the FHA’s list of approved condominium projects. To make the FHA’s approved condo list a condo must meet 3 basic requirements:

- It must be **primarily residential**.
- It must contain at least **two dwelling units**.
- It must be either **detached, semi-detached, a row house, a walk-up, mid-rise, high-rise**, including those with or without an elevator, or manufactured housing.

[In 2019, there were 150,000 condominium projects across the country, but only 6.5% of them qualified for FHA financing](https://www.spglobal.com/marketintelligence/en/news-insights/trending/_rm_ulplkwzhn1akd2gm8a2). Since then, new rules have been introduced to enable individual condo units to be eligible for FHA loans even if the full condo development isn’t approved. This is to increase the number of FHA approved units by up to 70,000 new units per year. Under the new rules, the FHA loan approval process evaluates the entire condominium project, not just the individual unit. Single condos within projects that are not approved can now be approved through a single-unit approval process sometimes called “spot approval.” The FHA loosened its eligibility requirements for condo owners in 2019, allowing individual condo units, including manufactured homes, to be eligible for FHA loans even if the full development isn't approved. This change, known as "spot approval," has opened up more opportunities for condo buyers to secure FHA financing.

Despite the new guidelines, “Condo hotels,” timeshares, houseboat projects, or condos that feature more than one dwelling in a single condominium unit are ineligible for homebuyers who need FHA financing.

## How to find out if a condo is FHA approved

The U.S. Department of Housing and Urban Development (HUD) maintains [this list](https://entp.hud.gov/idapp/html/condlook.cfm) of condominiums that are approved for an FHA condo loan.

To search for FHA approved condos you’ll need the state, county, and maybe the zip code (if you’d like to narrow your search to a more specific area). The list includes condominium projects that are approved, expired, rejected, or withdrawn, so select ‘approved’ status to make sure the condo you’re interested in can be financed with an FHA loan.

If a condo has already caught your eye, all you need is the condo name and state to see if it’s on the list. Alternatively, you could work with an experienced [real estate agent](https://better.com/realestate) who’s familiar with both FHA approved condos and the neighborhood where you’re hoping to buy.

## How a property gets approved for an FHA condo loan

As a homebuyer, this is more of a nice-to-know because no matter how much you want to buy a condo that’s not on the FHA approved condo list, it’s not your responsibility to get the condo FHA approved. The condo developer or their agent is typically responsible for getting their condominium project FHA approved. If the condo has been around for a while, the condo association or their management company submits the condo approval package. Additionally, it is important to note that the condo’s homeowners association (HOA) must have at least 10% of its HOA budget in a cash reserve to meet FHA requirements for commercial use.

If you want to learn about what goes into a condo approval package, or would simply enjoy some “light bedtime reading,” this 95-page [Condominium Project Approval and Processing Guide](https://www.hud.gov/sites/documents/11-22MLGUIDE.PDF) covers all the documentation and requirements the FHA needs to approve a condominium project.

Here are the highlights:

- The condominium project must have adequate insurance coverage
- Commercial space must not be more than 25%, up to a maximum of 55%, 35% of the project’s total floor space, depending on the project. 
- No more than 10% of the total units can be owned by one investor
- The project’s area structures, as well as the housing units themselves, must be complete
- Bylaws and covenants of the condominium must not violate the [Fair Housing Act](https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview)
- Condos, aka ‘condotels’, that double as a resort-type property are prohibited
- The project must be located a reasonable distance away from transportation infrastructure
- At least 50% of the units must be owner-occupied
- No more than 15% of units in the property can be behind on their homeowners association dues
- The project must have adequate capital reserves

As you can imagine, it can be time-consuming and often costly to get a condo project FHA approved and that’s why most condominium projects forgo FHA approval. Instead, they’re built in the hope that buyers use a [conventional loan](https://better.com/content/conventional-loan-requirements/) to finance their condo purchase.

## FHA condo requirements

There isn’t a specific FHA mortgage condo loan per se. You’ll need to be approved for an FHA mortgage loan and find a condo to buy on the FHA approved condo list. FHA mortgage loans have specific requirements for the types of residences you can buy, so you’ll be pleased to know that if you want an FHA-approved condo to be your primary residence, the property will automatically meet FHA mortgage loan requirements. However, it's important to note that investment properties and vacation homes are not eligible for FHA loans.

To be eligible for an FHA home loan you’ll typically need (keep in mind some requirements may vary by lender):

__A.__ A credit score within the eligibility range based on your down payment amount or even your lender’s specific requirements:

  1. If your down payment is 3.5%–9.9%, you’ll need a credit score above 580

  2. If your down payment is 10%, a credit score between 500–579 will suffice

  3. If applying through Better Mortgage, credit score of at least 580 is required to qualify

__B.__ A [debt-to-income (DTI)](https://better.com/content/3-most-important-numbers-mortgage-application/) ratio of 43% or less

__C.__ Evidence of steady income and proof of employment

__D.__ To make [mortgage insurance premium](https://better.com/faq/home-purchase-loan-costs/what-is-mortgage-insurance-premium-mip) (MIP) payments, in most cases for the life of the loan in most, plus a one-time upfront MIP payment equal to 1.75% of the loan amount


MIP is similar to [private mortgage insurance (PMI)](https://better.com/content/what-is-pmi-or-private-mortgage-insurance/), which borrowers with [conventional mortgages](https://better.com/content/conventional-loan-requirements/) need to pay if their down payment was less than 20%. Conventional mortgage borrowers will automatically stop paying PMI once they’ve reached 22% equity in their home (when they have 20% equity in their home, they can request an end to PMI). MIP, on the other hand, must be paid for the life of most loans. If your down payment is more than 10%, however, you can ask for MIP to end after 11 years of payments.

FHA [home loan requirements](https://better.com/content/conventional-loan-requirements) also allow borrowers to make down payments using gifted money from family or a friend. In this case, a [gift letter](https://better.com/content/how-to-use-a-gift-letter-for-your-mortgage/) will need to accompany the mortgage application to prove that the gift does not need to be paid back.

A range of [mortgage lenders](https://better.com/mortgage) offer FHA home loans and their eligibility requirements may differ. At Better Mortgage, for example, you’ll need a DTI ratio of 50% and a minimum credit score of 580 regardless of your down payment amount.*

## If the condo you want isn't FHA approved, you have options

While there’s no harm in asking if the condo developer or condo association can submit their condo for FHA approval, given that it can take from two weeks to over three months to get an FHA condo approval, it’s unlikely you’ll get a satisfactory result that works with your homebuying timeline.

If you know you’ll need to get an FHA home loan to buy a home, you’ll need to keep looking until you find a condo on the FHA approved condos list or consider buying a single-family home instead.
If an FHA loan does not sound right for you, you’re in luck! You may be eligible for a conventional loan with Better Mortgage. In fact, qualifying first-time homebuyers can get a conventional mortgage with a down payment as low as 3%. As an added bonus, you’ll no longer be limited to buying a condo that’s approved by the FHA. Additionally, if you’re eligible for the Fannie Mae HomeReady program, you may be able to snag a condo with a 3% down payment. However, to qualify for this program, you'll need at least a 620 credit score and income limits will apply.

In as little as 3 minutes, Better Mortgage can show you which types of loans you may qualify for, the homebuying budget you’ll have to work with, and they will match you with a loan consultant to walk you through your options to help you make the best financial decision for you and your family.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=fha-condo-approval">Get started</a>  
 </div>

 <p class="legal">*Eligibility is subject to change.</p>

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Learn about FHA condo approval requirements for buyers, including eligibility rules, documentation needed, and how to find FHA-approved condominium projects.

Understanding FHA condo approval requirements for buyers

Blog post image for Understanding the FHA condo approval requirements for buyers

Understanding the FHA condo approval requirements for buyers

<p><em>Getting ready to buy your dream home? Whether you’ve already started doing your research or aren’t quite sure where to begin, we’re here to help you get home. We’ve taken our best homebuying guidance and broken it up into bite-size to-dos.</em></p>

[![ Two Yellow and White Homes Side by Side](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fb6a176a3b45a40d2a52140b24b1a7831)](https://better.com/start-purchase) 

Buying a home is the biggest financial transaction most people will make. To help you prepare for it, this post is all about <strong>knowing your mortgage numbers</strong>.

<h3><span class="Text-accent">Your to-do list:</span></h3>

<p><img src="https://media.better.com/content/prod/2018/02/ruled-line@2x.png"></p>

<ul>
<li><h3>Check your credit score</h3></li>
<li><h3>Get a copy of your credit report and check for errors</h3> </li>
<li><h3>Calculate your debt-to-income ratio</h3></li>
<li><h3>Get a ballpark for how much you can afford</h3></li>
<li><h3>Practice your monthly mortgage payment</h3></li>
<li><h3>Consolidate your down payment funds</h3></li>
</ul>

<p><img src="https://media.better.com/content/prod/2018/02/ruled-line@2x.png"></p>

<h4 id="checkyourcreditscore">Check your credit score</h4>

<p>Your credit score helps lenders evaluate your ability to pay back your loans, based on your borrowing history. At Better Mortgage, we can currently provide loans to customers with a credit score of 620 or above (given that other factors like debt-to-income ratio have been satisfied). That said, the higher your credit score, the better rates you’ll be able to get. <a href="https://better.com/preapprovals/purchase">Check your credit score for free</a> as part of our 3-minute pre-approval (checking will not impact your score). <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">Read more about credit scores and how to improve them here.</a> <br />
<br>  </p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Check your Credit Score</a>  
</div>

<h4 id="getafreecopyofyourcreditreportandcheckforerrors">Get a free copy of your credit report and check for errors</h4>

<p>In addition to your credit score, you’ll also want to check your credit report, which provides lenders with a more detailed view of your borrowing history. Since errors can take time to dispute, we recommend checking sooner rather than later. <a href="https://www.consumer.ftc.gov/articles/0155-free-credit-reports">You can find instructions on how to request your credit report for free and dispute errors here.</a></p>

<h4 id="calculateyourdebttoincomeratiodti">Calculate your debt-to-income ratio (DTI)</h4>

<p>Did you know that a high DTI is the #1 reason mortgage applications get rejected?<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup> Your debt-to-income ratio is all your monthly debt payments (such as student loans, car loans, credit card bills, and your future mortgage payment) divided by your gross monthly income (how much money you earn before taxes). We work with Fannie Mae to offer loans with DTIs of up to 50% for creditworthy borrowers.<sup id="fnref:2"><a href="#fn:2" rel="footnote">2</a></sup> However, the lower your DTI, the more financing options will be available to you. <a href="https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/">Read about how DTI is calculated and how to improve your DTI here.</a> Our licensed Mortgage Experts can help you calculate your exact DTI. But for now, make sure you have a rough idea of what your DTI is so you can take steps to start improving it if necessary. <br />
<br>  </p>

<div style="text-align: center">  
<a  href="https://better.com/content/a-better-home-affordability-calculator/"><img src="https://media.better.com/content/prod/2018/01/Jan_calc-02.png"></a>  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/content/a-better-home-affordability-calculator/">Try our Affordability Calculator</a>  
</div>

<h4 id="getaballparkforhowmuchyoucanafford">Get a ballpark for how much you can afford</h4>

<p>Our <a href="https://better.com/content/a-better-home-affordability-calculator/">home affordability calculator</a> can give you a sense of the size of the loan you could qualify for, but keep in mind that to get a more accurate number, a lender will need to review your income, debt, credit, and assets a more closely. And remember, affordability isn’t just about the size of a loan you can get, but how much you can actually afford to put towards a monthly mortgage payment. Which bring us to the next item on the to-do list…</p>

<h4 id="practiceyourmonthlymortgagepayment">Practice your monthly mortgage payment</h4>

<p>Since you’ve got some time, consider using it to “practice” your mortgage payments and get a true sense of how buying a home will affect your monthly budget. If your estimated mortgage payment is more than your current rent, start putting aside the extra amount every month to simulate making mortgage payments. Does your budget still feel comfortable? If not, you may want to rethink how much you can really afford.</p>

<p><em>Tip: You’ll probably want to look up property taxes in the areas that you’re interested in, as tax rates can be quite high in certain areas, adding significantly to your overall monthly payment.</em>
<br> <br />

[![ Quote: To Save Yourself Headaches Later, Start Consolidating All Your Down Payment Funds Into One Account Now](https://media.better.com/content/prod/2018/01/Jan_checklist.png)](https://better.com/start-purchase)

<h3 id="consolidateyourdownpaymentfunds">Consolidate your down payment funds</h3>

<p>If you’re anticipating getting some assistance with your down payment from parents or family members, it may be a good time to start having those conversations so you have a more realistic picture of what you’ll be working with. When reviewing your assets, lenders are required to make sure the money in your accounts is really yours. That means we’ll need to see two months worth of bank statements for any funds you plan on using for your down payment. If we notice any big transfers or deposits, we’re required to ask for explanations for the transfers, as well as letters verifying that down payment gifts from friends and family members are truly gifts, not loans. We also won’t be able to use unsourceable funds (like cash under your mattress). <strong>To save yourself headaches later, start consolidating all your down payment funds into one account now.</strong> That way, your two-month transaction history won’t raise red flags when you do start the mortgage process. </p>

<p>Keep in mind that closing costs can add thousands of dollars to your total upfront costs, and are typically around 2-5% of the purchase price of the home. You may also want to budget for moving expenses, repairs, and renovations. <br />
<br>  </p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started</a>  
</div>

<p><br> <br />
<strong>See your next to-dos:</strong></p>

<ul>
<li><a href="https://better.com/content/home-by-summer-february-to-dos-understand-financing-options/">Understanding Your Home Financing Options
</a>
<br> <br />
<br>  </li>
</ul>

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p><a href="https://www.washingtonpost.com/realestate/fannie-mae-will-ease-financial-standards-for-mortgage-applicants-next-month/2017/06/05/9b391866-4a0b-11e7-9669-250d0b15f83b">https://www.washingtonpost.com/realestate/fannie-mae-will-ease-financial-standards-for-mortgage-applicants-next-month/2017/06/05/9b391866-4a0b-11e7-9669-250d0b15f83b</a> <a href="#fnref:1" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:2"><p><a href="https://www.housingwire.com/articles/40382-fannie-mae-raises-debt-to-income-ratio-to-further-expand-mortgage-lending">https://www.housingwire.com/articles/40382-fannie-mae-raises-debt-to-income-ratio-to-further-expand-mortgage-lending</a> <a href="#fnref:2" title="return to article">↩</a></p></li></ol></div>

Buying a home is the biggest financial transaction most people will make. To help you prepare for it, this post is all about knowing your mortgage numbers.

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