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The Federal Housing Administration (FHA) has a mortgage program that can help you qualify for a home loan even if your credit history isn't flawless or you don't have a large down payment. Read on to learn more about the best FHA lenders, how FHA mortgages work, and a step-by-step guide to securing an FHA mortgage.
5.0/5
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To find the best lender for an FHA loan, start by getting prequalified or pre-approved for a mortgage with a few lenders to get custom estimates. Prequalification will give you a ballpark rate based on your finances, and won't affect your credit score; applying for pre-approval will lower your credit score slightly, but you'll get more precise rate quote.
Here are a few points to keep an eye out for when comparing lenders:
Mortgage rates: Each FHA mortgage company sets its own rate. Even a small difference in interest rate could result in big savings.
Terms: Do you want a 15- or 30-year mortgage? Make sure the FHA lender you're interested in offers the term you're looking for.
Fees: When you sign a mortgage, you pay closing costs to finalize that loan. It's common for closing costs to amount to 2% to 6% of your loan amount -- try to find a lender with lower closing costs to save money.
5.0/5
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Bottom Line
Rocket Mortgage led the transition to a full digital experience and online-only applications. Its seamless process is one reason Rocket Mortgage is consistently ranked in the top two on J.D. Power's customer service rankings. Rocket Mortgage has a robust and high-quality app that makes it easy to use.
4.5/5
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Bottom Line
The diverse set of loan products and terms and relationship discounts make it a top pick, particularly for first-time home buyers and people interested in FHA loans. The high customer satisfaction ratings are the cherry on top.
5.0/5
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Bottom Line
Bank of America is one of the largest banks in the U.S., offering a wide variety of financial products in addition to its mortgages. Few lenders can match the lineup of loan products and terms. Bank of America offers a Preferred Rewards program for borrowers who have bank accounts at the bank and investment accounts at Merrill. Borrowers can qualify for an origination fee or interest rate reduction based on their eligible tier at the time of application.
4.0/5
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Bottom Line
PNC is a large bank with a wide range of financial products. It offers an online tool called Home Insight Planner to help borrowers find a home that fits their budget and needs. It then matches a borrower to its diverse loan products and terms. PNC can accommodate many borrowers, including those looking for mortgage options with no PMI.
4.5/5
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Bottom Line
The wide array of loan types and low- to no-down-payment options makes it a compelling lender to consider for a purchase or refi.
4.5/5
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Bottom Line
Pennymac specializes in government mortgages like VA and FHA loans. Pennymac offers rate transparency, help via phone or online, flexible loan terms, and a rate guaranteed to beat competitors. Pennymac is a great place for people to start looking for a mortgage.
Best for: Diverse options and homebuyers building credit
New American Funding
Rating image, 4.5 out of 5 stars.
4.5/5
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Bottom Line
New American Funding is one of the largest privately owned direct mortgage lenders in the country. The lender offers competitive rates and a wide variety of loans and customizable loan terms. The lender also has a highly efficient lending process that allows for quicker closing times. What's more, New American can be a good solution for people building credit and wanting a good mortgage. It focuses on lending to underserved communities.
Min. Credit Score
580 FHA
620 other mortgage products
580 - 620
Min. Down Payment
0% VA
3% Conventional
3.5% FHA
0% - 3.5%
Key Features
Fast service
One of the top lenders to Hispanic and Black borrowers.
Offer customizable loans, including home addition loans
High customer satisfaction, A BBB rating
Loan Types
Conventional
FHA
VA
USDA
Jumbo
Fixed Rate Terms
Customizable (8-30 years)
Adjustable Rate Terms
10/1 and 10/6, 7/1 and 7/6, 5/1 and 5/6
Is an FHA loan right for me?
If you're looking toget a mortgage with poor credit or without a large down payment, an FHA loan could be a smart option. Use our list above as a starting point to find the best FHA lenders for bad credit.
But if your credit score is higher or you have a relatively large down payment, you'll probably save money with a conventional mortgage.
For example:
If your down payment is 20% of the purchase price on a conventional loan, you can avoid paying mortgage insurance altogether. With an FHA loan, however, you would still pay annual MIP for 11 years.
Even if you don't have a large down payment, borrowers with excellent credit scores might still get conventional mortgages with down payments as low as 3%.
If that's your situation, get started with our list of this month's best mortgage lenders.
Do all lenders work with FHA loans?
For lenders to offer FHA loans, they must be approved by the Federal Housing Administration, which backs those loans. Many banks and lending institutions offer FHA loans, but there are some lenders that are not approved to offer them.
What are the requirements for an FHA loan?
An FHA mortgage is a private home loan insured by the government. Because the loan amount is backed by the FHA, lenders are more willing to take on high-risk borrowers.That said, FHA does have some requirements, such as:
Down payment of at least 3.5%
Credit score of at least 580 (can be as low as 500 if your down payment is 10% or more)
Debt-to-income ratio of at most 43%
Loan must be for an owner-occupied property
Two years of stable income and explanations for any gaps in employment history
Safe, sound, and secure property
Are there extra costs with an FHA loan?
Yes, FHA loans come with costs above what you'll pay on the mortgage. Perhaps the most significant is the FHAmortgage insurance premium (MIP), which is broken down into two types: upfront and annual.
The upfront MIP is 1.75% of the loan amount. For example, if you buy a $300,000 home and put 3.5% down, your base loan amount is $289,500. The upfront MIP on this loan amount would be 1.75% of $289,500, or $5,066.25. This amount is paid only once and can be rolled into your FHA loan.
The annual MIP is a bit more complicated to calculate. It depends on the loan length, amount, and down payment.
For most 15-year FHA loans, it ranges from 0.15% to 0.65% per year.
For 30-year FHA loans, it's in the 0.50% to 0.75% range.
If your down payment is less than 10%, you'll pay annual MIPs for the entire length of your FHA loan.
For those FHA borrowers who can put down 10% or more, annual MIPs can be dropped after 11 years for both 15- and 30-year loan terms.
Is there an income limit for FHA loans?
No, you don't need a minimum or maximum income to qualify foran FHA loan. But there are FHA loan limits -- that is, a maximum amount you can borrow. FHA loans can be made in higher amounts for a duplex, because there are more units involved.
If you're curious about the FHA loan limit for a specific geographic location, the Department of Housing and Urban Development (HUD) has a quick and easy search tool you can use.
Pros and cons of FHA loans
FHA loans have their benefits and drawbacks so it's important to consider both.
Here's a closer look at a few pros and cons.
Pros:
Lower credit score requirements
Lower down payment requirements
Available to first-time home buyers and repeat buyers
Can buy a multi-unit property as long as you occupy one unit
No income maximums
Cons:
Upfront and ongoing mortgage insurance premiums
Can't borrow for a vacation home or investment property
Must stick to the annual loan limits
What is an FHA loan?
An FHA loan is a type of mortgage insured by the Federal Housing Administration. Thesemortgage loans have lower barriers to entry and can help you finance a home even if you don't have a high credit score or large down payment.
Because the requirements aren't as strict as conventional mortgages, these loans are perfect for first-time home buyers or those with poor credit.
FHA mortgages come in two different types:
FHA 203(b) loan: This is designed forbuying a home that is move-in ready. It's the "standard" FHA loan.
FHA 203(k) loan:This is an FHA mortgage loan designed for purchasing homes that need significant repairs or renovations before move-in. Many of the best FHA 203(k) lenders will let you roll these costs into a monthly mortgage payment with a competitive interest rate.
One of the most important points to know aboutFHA loans is that they are meant only for owner-occupied properties. You can't use an FHA loan to buy a vacation home, rental, or investment property.
An FHA loan is a type of mortgage loan that is designed for buyers who have poor credit scores, small down payments, or higher-than-average DTI ratios. FHA loans are made by private mortgage lenders, such as banks, credit unions, and specialized mortgage lenders, and are guaranteed by the Federal Housing Administration.
FHAs require two types of mortgage insurance premiums (MIP): annual and upfront. They don't, however, require private mortgage insurance (PMI).
Yes, the minimum FICO® Score required for an FHA loan is 580. For down payments above 10%, the minimum credit score is 500.
The best bank for FHA loans is one that offers you a competitive mortgage rate and will pre-approve you even if your credit score isn't flawless. Many national banks have FHA mortgage programs, but you can check out credit unions to compare rates.
No, they're not the same. An FHA lender is someone who will issue you an FHA loan, whereas an FHA mortgage broker is an intermediary who will connect you with FHA lenders or FHA mortgage companies. Brokers can help you find good FHA loan rates, but they won't lend you money themselves.
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