Sun. Jan 17th, 2021

Most Americans need a mortgage to buy a home, but saving enough for a traditional 20% down payment can be an unattainable goal, particularly for first-time homebuyers. Enter the Federal Housing Administration, or FHA, loan program, which guarantees lenders full payment, allowing them to offer borrowers lower down payments and easier credit qualifications than conventional loans. Some FHA mortgage lenders may allow credit scores as low as 500, depending on your down payment.

Homebuyers considering an FHA loan should shop around to find the best mortgage lenders.

This guide explains what you need to know about FHA loans and offers recommendations for the best FHA lenders that can meet your homebuying needs. What you’ll learn:

  • What is an FHA loan?
  • Can you qualify for an FHA loan?
  • Is getting an FHA loan a good idea?
  • How can you choose the best FHA lender?

What Are the Best FHA Loans?

Lender
U.S. News Rating
Not disclosed Min. Down Payment
600 Min. Credit Score
Lender
U.S. News Rating
3% Min. Down Payment
600 Min. Credit Score
Lender
U.S. News Rating
3% Min. Down Payment
620 Min. Credit Score
Lender
U.S. News Rating
Not disclosed Min. Down Payment
620 Min. Credit Score
Lender
U.S. News Rating
3% Min. Down Payment
Not disclosed Min. Credit Score
Lender
U.S. News Rating
3% Min. Down Payment
600 Min. Credit Score
Lender
U.S. News Rating
3% Min. Down Payment
620 Min. Credit Score

Best for fair credit

Flagstar offers banking and lending products in every state. Borrowers can select from conventional or government-backed mortgages, such as FHA, VA and U.S. Department of Agriculture loans, and opt for adjustable-rate mortgages. Other choices include home equity loans and lines of credit.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, jumbo, refinance and USDA
  • Minimum FICO credit score: 600
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Provides a broad selection of mortgages and home equity loans

  • Offers some mortgages that don’t require a down payment

  • Allows borrowers to apply for loans online

See full profile

Best for bad credit

Carrington Mortgage Services makes a range of mortgages, including refinancing, available to borrowers nationwide. The company, which provides conventional and government-backed mortgages, has funded $22 billion in home loans since 2011.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, home equity loans and HELOCs, jumbo, refinance, USDA, and VA
  • Minimum FICO credit score: 500
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • Accepts applicants with credit scores as low as 500

  • Offers conventional loans with down payments as low as 3%

See full profile

Best for product selection

Guild Mortgage, founded in 1960, specializes in home loans and serves borrowers nationwide. The lender’s full suite of products includes conventional and government-backed mortgages and home equity loans.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, jumbo, manufactured home, refinance, reverse, USDA and VA
  • Minimum FICO credit score: 600
  • Maximum loan amount: varies
  • Better Business Bureau rating: A+

Best Features

  • Receives strong customer service ratings from the Better Business Bureau

  • Offers a broad range of mortgage products

  • Provides special mortgage programs for first-time buyers and manufactured homebuyers

See full profile

Best for low APR

New American Funding is a national mortgage lender with a variety of home loan options. The lender has processed more than $27 billion in mortgages.

Before You Apply

  • Mortgage types: ARM, cash-out refinance, conventional, FHA, HELOCs, jumbo, reverse, USDA and VA
  • Minimum FICO credit score: 500
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Provides multiple mortgage options, including low and no down-payment loans

  • Offers fixed- or adjustable-rate mortgages

See full profile

Best for VA loans

Veterans United Home Loans provides mortgages to veterans and military families in all 50 states and Washington, D.C., and specializes in VA loans. In 2019, Veterans United Home Loans generated the largest number of VA loans in the nation.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, refinance, USDA and VA
  • Minimum FICO credit score: 660
  • Maximum loan amount: $1.5 million
  • Better Business Bureau rating: A+

Best Features

  • Requires no military service

  • Sets no minimum loan amount

See full profile

Best for low costs

Chase, one of the nation’s largest banks, offers mortgage and refinance loans for qualified borrowers. Home equity loans and HELOCs are also available.

Before You Apply

  • Mortgage types offered: ARMs, conventional, FHA, jumbo, refinance and VA
  • Minimum FICO credit score: 620
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Accepts down payments as low as 3%

  • Receives high marks from the Better Business Bureau

See full profile

Best for fair credit

NBKC Bank is a Kansas City-based mortgage lender. It originates home loans in every state.

Lender Highlights

  • Mortgage types: ARMs, conventional, Department of Veterans Affairs, FHA, refinancing
  • Minimum FICO credit score: 620
  • Maximum loan amount: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • Some fair-credit borrowers eligible

  • Simple online process for applicants

  • VA loans with no lender fees

See full profile

Best for low down payment

PNC Bank is one of the largest U.S. banks, serving more than 8 million customers in all 50 states. PNC offers most types of mortgages.

Before You Apply

  • Mortgage types: ARMs, conventional, FHA, first-time homebuyer program, home equity, HELOC, jumbo, refinance, USDA and VA
  • Minimum FICO credit score: undisclosed
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: A+

Best Features

  • Offers multiple types of mortgages

  • Provides no or low down-payment mortgages

  • Supplies an online home ownership cost tool

See full profile

Best for large loan amounts

Bank of America serves roughly 66 million customers in all 50 states. The lender offers conventional, Federal Housing Administration, Department of Veterans Affairs and jumbo loans, as well as home equity lines of credit and mortgage refinancing.

Lender Highlights

  • Mortgage types: ARMs, conventional, FHA, first-time homebuyer program, home equity lines of credit, refinancing, VA
  • Minimum FICO credit score: 600
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: A+

Best Features

  • Wide variety of mortgages

  • Annual percentage rate or closing cost discounts for qualifying Bank of America and Merrill Lynch clients

  • No closing costs and no annual, balance transfer and cash advance fees for HELOCs

See full profile

Best for product availability

Founded in 1999, McGlone Mortgage Group offers home purchase and refinance loans. The Appleton, Wisconsin, lender provides buyers many mortgage options.

Lender Highlights

  • Mortgage types: conventional, Department of Veterans Affairs, FHA, jumbo, refinancing, U.S. Department of Agriculture
  • Minimum FICO credit score: 600
  • Maximum loan amount: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • Multiple mortgage calculators and tools

  • Co-signers allowed for most loans

See full profile

What Are Today’s Mortgage Rates?

Locking in a low mortgage rate now could save you thousands over the life of your loan. Compare your mortgage rate offers with national average trends for current mortgage rates.*







Loan Types

This Week’s Rate

Last Week’s Rate

30-year fixed-rate mortgage 3.01% 3.03%
15-year fixed-rate mortgage 2.58% 2.56%
30-year fixed-rate jumbo mortgage 3.03% 3.09%
5/1 ARM 3.04% 3.06%
5/1 jumbo ARM 2.86% 2.87%

*Rates as of Oct. 28, 2020

FHA Loan Calculator

Is your dream home within reach? U.S. News’ mortgage calculator will show you how much house you can afford.

What Is an FHA Loan?

FHA loans are government-backed mortgages that reduce the barrier to entry for low- to moderate-income homebuyers. They are issued by FHA-approved lenders and guaranteed by the Federal Housing Administration, which is part of the Department of Housing and Urban Development. With a government guarantee, a lender can offer more flexible underwriting requirements than on conventional loans, including lower minimum down payments.

The guarantee allows lenders to work with borrowers who might not qualify for a conventional mortgage. Conventional mortgage lenders typically expect a 20% down payment, but the FHA minimum down payment requirement is 3.5%.

FHA loans also have lower minimum credit score requirements and may allow a higher debt-to-income, or DTI, ratio. This is a measure of how much you owe each month compared with how much you earn.

These loans can be a good choice for first-time homebuyers and consumers with nontraditional credit histories or low credit scores.

Can You Qualify for an FHA Loan?

General FHA loan requirements for borrowers include:

  • Valid Social Security number and legal U.S. residency
  • Steady income and proof of employment
  • Down payment of at least 3.5% for a minimum 580 credit score
  • Down payment of at least 10% for a minimum credit score of 500
  • Home must be used as your primary residence and meet the FHA’s minimum property standards
  • Appraisal by an FHA-approved appraiser
  • No recent bankruptcies or foreclosures

You can use an FHA loan more than once, but the FHA will not guarantee more than one home per borrower at a time. That means if you have an FHA loan and you want another one, you will need to pay off your existing FHA loan first.

The FHA also has maximum loan amounts it will insure, known as FHA loan limits. FHA loan limits are based on median local home values.

The type of property and the county you live in affect your limits. Home loan limits are higher in costly metro areas, including San Francisco, New York City and Washington, D.C., and lower in more affordable markets, such as Montgomery, Alabama.

The upper limit, or ceiling, on FHA loans in 2020 for single-family homes in low-cost counties is $331,760, and the ceiling in high-cost areas is $765,600. Exceptions apply in select very high-cost areas, such as Honolulu. In these areas, the upper limit on an FHA loan for single-family properties is $1,148,400.

Is Getting an FHA Loan a Good Idea?

FHA loans are a good idea for homebuyers who can’t qualify for a conventional mortgage, whether the barriers are minimum credit score or minimum down payment requirements. For example, first-time homebuyers who are new to credit and lack the cash for a large down payment can benefit from FHA loans.

But get all of the information you can about FHA loans before you sign on the dotted line.

“Numerous studies have demonstrated that pre-purchase homebuyer education can have a positive impact on a wide range of financial behavior,” says Bruce McClary, vice president of public relations and communications for the National Foundation for Credit Counseling and U.S. News contributor.

What Are the Downsides of an FHA Loan?

An FHA loan can make a mortgage more accessible, but it might not be the best choice for every borrower. Make sure you consider the drawbacks.

Chiefly, these are that your offer could be less attractive to sellers than buyers with traditional mortgages and that you’ll pay FHA mortgage insurance. FHA mortgage insurance protects the lender from losses if you default on the loan.

“If a borrower has good credit but limited cash on hand, other government-backed loans are available for less money down,” says Stephen Moye, sales manager and senior loan officer for Tustin, California-based mortgage lender New American Funding. “For a borrower with a bankruptcy, foreclosure or other credit issue, the FHA loan has a much lower barrier to entry.”

FHA mortgage insurance is an extra expense, as with private mortgage insurance, that can make FHA loans more costly than conventional mortgages. There are two different FHA mortgage insurance premiums, or MIPs: upfront mortgage insurance premium and annual mortgage insurance premium.

Upfront MIP is 1.75% of the loan amount. This upfront mortgage insurance may be paid at closing or rolled into the loan.

Annual mortgage insurance premium depends on loan size, repayment term, loan-to-value ratio and annual home loan balance. Borrowers who make a down payment of at least 10% will pay annual MIP for 11 years; borrowers who make smaller down payments must pay mortgage insurance premiums for the entire mortgage term.

In addition to cost concerns for the buyer, some sellers may dislike FHA loan requirements.

If a home is appraised for less than your offer, the seller has to reduce the sales price to the appraised value or walk away from the deal. Also, any major health, safety or security defects identified during the appraisal must be repaired before the sale at the seller’s expense.

Another potential drawback of FHA loans is that they require you to live in a home for the entire loan term. That makes FHA loans inappropriate for an investor unless you’d plan to buy a multi-unit property and live on-site.

How Can You Get an FHA Loan?

The process of obtaining an FHA loan is largely the same as the conventional mortgage process.

The main difference is that the search for a suitable FHA loan lender is limited to those that offer FHA loans. Banks, credit unions and online mortgage lenders may offer FHA loans, but not all do.

You can select the right FHA lender by using prequalification to compare mortgage offers from multiple FHA-approved lenders. Once you’ve found the best FHA lender for your needs, you will complete these steps in the mortgage process:

  • Application and review of loan estimate
  • Documentation submission
  • Appraisal
  • Underwriting
  • Closing

How Can You Choose the Best FHA Lender?

Shop around to find the best FHA mortgage lender to meet your needs. When looking for the best FHA loan, consider these criteria:

  • Type of product and whether others could work better for you
  • Eligibility requirements
  • Interest rates
  • Closing costs
  • Customer service reviews

Product offerings include loan terms and types. The right FHA lender may mean be the one with the right loan to meet your needs, whether you’re looking for a 30-year fixed-rate loan or an adjustable-rate mortgage.

Not all lenders will make loans to borrowers who meet only the minimum requirements for the loan program. While the FHA will guarantee loans to borrowers with a 500 or 580 credit score or better, lender credit score requirements vary.

If you have a lower credit score than the lender is willing to accept, you won’t be approved. Research each lender’s minimum credit score and maximum DTI ratio requirements.

Compare annual percentage rates, or APRs, from one lender to the next. Because this figure includes your interest rate, as well as points and other fees, the APR will be higher than the interest rate and is a more accurate measure of the true cost of the loan.

Lower interest rates – even by a few tenths of a percent – can equate to a lower monthly mortgage payment and thousands of dollars saved over the life of a loan.

Expect to pay 2% to 5% of your loan amount in closing costs. Luckily, you can shop for a lender with low closing costs.

Make sure to evaluate closing costs and interest charges to determine the total cost of the loan over time. A low closing-cost option and a high interest rate could cost more over time than higher closing costs and lower interest rates.

Also, if you roll closing costs into your loan’s monthly mortgage payment, remember that you will pay interest on those costs.

Advertising Disclosure: Some of the loan offers on this site are from companies
who are advertising clients of U.S. News. Advertising considerations may impact
where offers appear on the site but do not affect any editorial decisions,
such as which loan products we write about and how we evaluate them. This site
does not include all loan companies or all loan offers available in the marketplace.

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