If you don’t have the down payment savings to qualify for a conventional loan, an FHA home loan can make a big difference. FHA loans require as little as 3.5 percent down if you meet the credit score requirement, making them appealing to first-time homebuyers and others with limited funds for a down payment.
While FHA loans come with eligibility rules regardless of the mortgage lender you work with, the interest rate you qualify for and closing costs can vary. That’s why it pays to shop around carefully for an FHA mortgage lender. Bankrate has made this process easier for you by reviewing dozens of mortgage lenders based on several key criteria. Here is our guide to the best FHA mortgage lenders in 2022.
To determine the best FHA mortgage lenders, Bankrate evaluated lenders based on several criteria, including cost (competitive FHA loan rates and low or no fees); availability of other low-credit or low-down payment loan programs; and scope of FHA loan offerings.
Best FHA mortgage lenders
New American Funding
New American Funding mortgage review
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, USDA, home equity line of credit (HELOC), investment property, flex-term, non-QM, reverse mortgage|
|Credit requirements||620 for conventional loans|
|Highlights||New American Funding offers several FHA purchase and refinance options with competitive rates.|
PNC Bank mortgage review
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, USDA, HELOC, home equity loan, investment property, interest-only|
|Credit requirements||620 for conventional loans, jumbo loans and FHA loans; 640 for USDA loans|
|Highlights||PNC offers homebuyer assistance grants of up to $5,000 to use towards closing costs.|
Flagstar Bank mortgage review
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, USDA, home equity loan, construction and renovation loans|
|Credit requirements||620 for conventional loans; 700 for jumbo loans; 580 for FHA loans|
|Highlights||Flagstar Bank has a variety of programs and grants to help make homeownership more affordable.|
Carrington Mortgage Services
Carrington Mortgage Services review
|Loan products||Purchase and refinance; conventional, FHA, VA, USDA, non-QM|
|Credit requirements||620 for conventional loans; 500 for FHA loans and VA loans; 550 for non-QM|
|Highlights||Carrington Mortgage Services offers home loan products that are accessible to credit-challenged borrowers.|
Bank of America
Bank of America mortgage review
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, HELOC|
|Credit requirements||620 for conventional loans; 680 for jumbo loans|
|Highlights||Select borrowers could obtain down payment and closing cost assistance through Bank of America’s affordable housing programs.|
Who is eligible for an FHA loan?
You don’t have to be a first-time homebuyer to qualify for an FHA loan. However, FHA loans are ideal for first-time buyers, as they come with less strict underwriting criteria than a conventional loan, which means they could be easier to qualify for:
- The borrower can have a credit score of 500 to 579 with a 10 percent down payment, or a credit score of 580 or higher with a 3.5 percent down payment.
- The borrower must have a debt-to-income ratio (DTI) of no more than 43 percent. DTI ratio is the borrower’s monthly debt payments divided by their gross monthly income. (Note: Lenders typically calculate 0.5 percent of your student loan debt balances to determine your monthly student loan payment for the DTI calculation).
- The borrower must have a front-end ratio (how much of their gross monthly income goes toward their mortgage payment) of no more than 31 percent.
- The borrower must provide proof of employment history from the past two years.
- The loan cannot exceed FHA loan limits: $420,680 in most areas, and $970,800 in higher-cost areas.
- The loan must be for a primary residence only.
- If applicable, the borrower must wait one year after a Chapter 13 bankruptcy, two years after a Chapter 7 bankruptcy and three years after a foreclosure before seeking an FHA loan.
Benefits of an FHA loan
- FHA loans make it easier for lower-credit borrowers, lower- or moderate-income borrowers and borrowers with limited savings to purchase a home.
- If you have a lower credit score, you could get a better rate with an FHA loan than you would with a conventional loan.
- FHA loans come with fixed interest rates, which means your monthly mortgage payment stays the same for the duration of the repayment term.
- FHA lenders cannot charge more than 3 percent to 5 percent of the loan principal in closing costs.
Drawbacks of an FHA loan
- FHA loans require the borrower to pay two mortgage insurance premiums (MIP): one upfront that equals 1.75 percent of the loan principal; and an annual premium of 0.45 percent to 1.05 percent based on your loan term, amount borrowed and loan-to-value ratio (LTV) at the time the loan was made.
- The FHA MIP can only be cancelled if you made a down payment of at least 10 percent, and only after 11 years.
- FHA loans come in 15- or 30-year terms only — no flexibility.
- There might be higher fees for an FHA loan than a conventional loan.
How to apply for an FHA loan
Most mortgage lenders and banks offer FHA loans, although their interest rates and fees can vary. Begin by comparing lenders and offers through Bankrate to find the best FHA mortgage lender for you.
Once you choose an FHA lender, you can either apply online, by phone or at a branch location, if available. In the application process, be prepared to furnish documentation, including bank statements, W-2 forms, pay stubs and other financial information, and also to provide additional information if requested.
Summary: Best FHA mortgage lenders
With additional reporting by Allison Martin