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 2021.
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
There’s a reason why Rocket Mortgage, an affiliate of Quicken Loans, is one of the nation’s biggest mortgage lenders and ranked No. 1 in mortgage origination customer satisfaction in 2020 by J.D. Power: It offers an array of loan options and is known for making the financing process simple and speedy.
An FHA-approved lender, Rocket Mortgage’s FHA loan offerings include FHA loans with low credit and down payment requirements, and FHA streamline refinancing, which comes with flexibility for borrowers and no appraisal requirement. The lender also boasts competitive FHA loan rates compared to others, but might have higher lender fees, which aren’t disclosed on its website, that can add to your costs.
In addition to FHA loans, Rocket Mortgage offers conventional loans, jumbo loans, VA loans, a flex-term “YOURgage” product and refinancing.
What helps set Rocket Mortgage apart is the fact that its borrower support team is conveniently available via email, live chat and phone, and it was named one of Bankrate’s best online mortgage lenders in 2021. Rocket Mortgage has no branch locations, however, so you can’t apply in person.
Better.com is an online mortgage lender that prides itself on a simple premise: no fuss and no fees. The lender offers a 100-percent online process where you can access a rate quote in seconds, and also obtain a preapproval quickly.
As an FHA-approved lender, Better.com offers FHA loans for purchases and refinancing. Its FHA loan rates are also competitive — a byproduct of having no brick-and-mortar locations and low overhead as a completely digital operation. In addition to FHA loans, the lender offers conventional loans, jumbo loans and other forms of refinancing.
Another standout? Better.com was named one of Bankrate’s best mortgage lenders overall and best online mortgage lenders in 2021. There are also no application, origination, underwriting or other lender fees, which can save you a substantial amount of money. The disadvantages of this lender, however, include that it isn’t available in every state, so be sure to confirm before adding it to your short list.
Carrington Mortgage Services
While Carrington Mortgage Services doesn’t score near the very top in Bankrate’s official review, this FHA-approved lender has several loan options for borrowers, including FHA loans for purchases and FHA cash-out and streamline refinancing.
If you don’t qualify for an FHA loan, you might be eligible for Carrington Mortgage Services’ “Flexible Advantage” loan instead, designed for credit-challenged borrowers. Current customers may also be able to benefit from closing cost credits, although all borrowers can likely count on paying some lender fees — these aren’t spelled out on the lender’s website, and you’ll have to speak with a loan officer in order to get this information, or a preapproval. Its rates aren’t made available to the public, either.
In addition to FHA loans, Carrington Mortgage Services offers conventional loans, VA loans, USDA loans and other forms of refinancing. The lender is available in the majority of states, but operates just a handful of branches.
AmeriSave Mortgage Corporation
AmeriSave Mortgage Corporation is a mortgage lender operating in every state (except for New York), with a bevy of loan options and perks for borrowers. For starters, you can get a prequalification and a personalized rate quote in under three minutes, usually without requiring a hard credit pull. The lender also completes closings, on average, in 25 days.
AmeriSave Mortgage Corporation’s FHA loan products include FHA loans for purchases; and FHA cash-out, rate-and-term and streamline refinancing. The FHA-approved lender’s FHA loan rates are also some of the most competitive on the market.
In addition to FHA loans, the lender offers conventional loans, VA loans, USDA loans and other forms of refinancing.
On top of its loan offerings, AmeriSave Mortgage Corporation was named one of Bankrate’s best online mortgage lenders in 2021. Its transparent pricing and fee structure allow you to view and compare all programs and rates you’re eligible for online, and choose the best one for your needs.
While you won’t pay an origination fee, you’ll have to pay a flat $500 application fee with this lender, however.
Established in 2008, PennyMac is a mortgage lender available in all states online or by phone, catering to a range of borrowers, from first-time and repeat homebuyers to investors and veterans. The FHA-approved lender offers FHA loans for purchases, as well as FHA cash-out and streamline refinancing. Its FHA loan rates are competitive compared to others, and it is currently waiving lender fees on FHA purchases, which can save you $1,100 in closing costs (according to the lender).
In addition to FHA loans, PennyMac offers conventional loans, VA loans, USDA loans and other forms of refinancing.
One of the benefits of working with PennyMac is its close-on-time promise, which gifts borrowers a $500 gift card if the lender is responsible for any closing delays. The lender also provides a “better rate promise”: If it can’t beat a better offer from another lender, you’ll get a $250 gift card.
As is the case with many lenders today, however, PennyMac has no brick-and-mortar branches.
PNC Mortgage checks many boxes for borrowers, including that it’s one of the largest mortgage lenders out there, available in every state and has a diverse set of loan programs. The FHA-approved lender’s loan offerings include FHA loans for purchases and refinancing. Its FHA loan rates are some of the lowest around, as well.
In addition to FHA loans, PNC Mortgage offers conventional loans, jumbo loans, VA loans and other forms of refinancing. The lender also offers 80-10-10 “piggyback” mortgages, which allow for a low down payment with no mortgage insurance.
Among its many benefits, PNC Mortgage is known for its easy digital preapproval process, helpful online resources and $1,500 cash grant available to borrowers who qualify, which can be applied to closing costs.
However, you won’t find discounts for current customers or others readily advertised, so you’ll have to inquire to see if there are any savings opportunities. The also lender scored in the middle of the pack for mortgage origination customer satisfaction by J.D. Power in 2020.
Who is eligible for an FHA loan?
You don’t have to be a first-time homebuyer to qualify for an FHA loan, although they are ideal for first-time purchasers. The eligibility requirements include:
- 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.
- 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: $356,362 in most areas, and $822,375 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.