Best FHA mortgage lenders in 2023

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 2023.

Best FHA mortgage lenders

Mr. Cooper

Mr. Cooper mortgage review

Cardinal Financial

Cardinal Financial mortgage review

• Works with affordable housing, first-time homebuyer and down payment assistance programs nationwide
• Offers specialized loan products

LowRates.com

LowRates.com mortgage review

• No fees
• Can close as fast as 20 days
• Offers HELOCs and home equity loans

U.S. Bank

U.S. Bank review

Wells Fargo

Wells Fargo mortgage review

• Will consider non-traditional credit references in the application process
• Offers low-down payment options to assist lower-income borrowers

Summary: Best FHA mortgage lenders

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: $472,030 in most areas, and $1,089,300 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 data if requested.

Methodology

To determine the best FHA mortgage lenders, Bankrate evaluates lenders based on several criteria, including affordability (APR, discounts and/or incentives); availability (approval/closing timelines, loan products); and experience (application process, customer service).