Best FHA lenders of September 2024 #CashNews.co

If it weren’t for loans backed by the Federal Housing Administration (FHA), it’s likely that thousands upon thousands of people wouldn’t have been able to afford to buy their first home. Over the past 90 years, FHA-insured mortgages have enabled lenders to accommodate underserved households.

Yahoo Finance has researched lenders offering FHA loans, examined the federal records of lending practices — including interest rates, loan costs, and affordability factors — and has determined the best FHA lenders worthy of your consideration.

Best FHA lenders of September 2024

Best FHA lender overall

Pennymac

The Yahoo view: In a Yahoo Finance analysis, Pennymac garnered a 5-star rating in the mortgage rate category for its low median interest rates when compared to its competitors. Online features were also impressive.

Stars: 3.80

Read our full Pennymac mortgage review

Key benefits

• Use a Pennymac-affiliated real estate agent and get from $350 to $9,500 cash after closing.

• If rates go down after you close a home loan with Pennymac, get a $2,000 credit toward closing costs when you refinance within three years.

Need to know

• Advertised FHA mortgage rates require a credit score of 680 — higher than the FICO 580 that the FHA requires.

• Pennymac has a below-average rating for customer satisfaction, according to the 2023 J.D. Power Mortgage Origination Satisfaction Study.

Best FHA lender for in-person service

Fairway Independent Mortgage Corporation

The Yahoo View: Fairway is a seasoned FHA lender offering branch locations in 48 states and Washington, D.C.

Stars: 3.00

Read our full Fairway Independent Mortgage Corporation Mortgage review

Key benefits

• When you prefer working face-to-face with a lender, Fairway has branch locations nationwide.

• You can apply online, in person, or by phone.

• Fairway offers first-time home buyer grants, which can be applied to closing costs or your down payment.

Need to know

Learn more: How an FHA cash-out refinance works

Best FHA lender for customer satisfaction

Rocket Mortgage

The Yahoo view: Rocket Mortgage has the highest retail volume of FHA loans nationally and is near the top of all lenders in customer satisfaction. Unfortunately, Yahoo Finance found loan costs to be high with little rate transparency.

Stars: 3.06

Read our full Rocket Mortgage review

Key benefits

• Rocket Mortgage provides up to a $7,500 grant toward the down payment and closing costs for eligible first-time home buyers in 21 U.S. metro areas.

• Home buyers who purchase a home through its partner company Rocket Homes can earn a closing costs credit of 1.25%, up to $10,000 on a loan financed by Rocket Mortgage.

• Rocket Mortgage offers FHA loans for manufactured homes. Specifically, it offers Title II loans, which cover both the manufactured house and the land it sits on.

Need to know

• Rocket Mortgage ranks second in customer satisfaction among home loan lenders, according to the latest J.D. Power Mortgage Origination Satisfaction Study.

• Rocket also earns high marks in satisfaction for mortgage servicing — the collection of loan payments from borrowers and dispersing the funds to third parties.

Best FHA lender for refinancing

AmeriHome Mortgage

The Yahoo view: AmeriHome dedicates more than 20% of its business to FHA loans, and an FHA Streamline Refinance offers a quicker decision and less paperwork.

Stars: 3.60

Read our full AmeriHome Mortgage review

Key benefits

• AmeriHome offers homeowners FHA refinance loans with no origination charge.

• For borrowers without a credit history, AmeriHome considers alternative credit data, such as bank statements.

• A temporary interest rate discount, called a buydown, can reduce your mortgage rate by up to 3%.

Need to know

• AmeriHome doesn’t lend to Hawaii, Massachusetts, or New York residents.

• With no physical branches, you’ll need to apply online or by phone.

Learn more: Want to refinance your FHA loan? Here are 4 loan options.

Best FHA lender for borrowers without traditional credit scores

Guild Mortgage

The Yahoo view: Guild Mortgage excels at catering to home buyers who want to qualify with alternative credit such as rent history and utility payments. However, Guild falls short in customer satisfaction.

Stars: 2.80

Read our full Guild Mortgage review

Key benefits

• FHA borrowers without a traditional credit score can qualify under the Complete Rate program with alternative credit such as rent history, utilities and car insurance payment history, and bank statement analysis.

• Income-qualified first-time home buyers get a $2,000 gift card to The Home Depot and $500 to $1,500 toward closing costs with a 3% down mortgage. This is specific to conventional loans, not FHA mortgages, but it could factor into your decision about whether to choose an FHA or conventional loan.

Need to know

• Guild Mortgage ranks near the bottom of customer satisfaction, according to the latest J.D. Power Mortgage Origination Satisfaction Study.

• We couldn’t find any sample mortgage rates on its website.

Best FHA lender for educational resources

New American Funding

The Yahoo view: New American Funding receives 5 stars in Yahoo Finance’s affordability category because of its broad selection of loans. However, mortgage rate transparency is lacking.

Stars: 3.20

Read our full New American Funding review

Key benefits

• New American Funding has an “FHA Loan Details by State” page where you can select your state and see the rules and benefits for FHA mortgages where you live.

• The FHA page has a lot of educational content on FHA loan requirements, types of FHA loans, pros of each FHA loan term length, and more.

• The “Pathway to Homeownership” program targets first-time home buyers who need up to $8,000 in assistance for a down payment or closing costs. Additional requirements apply. This program is for conventional loans, not FHA loans — but if you qualify for this assistance, it can help you decide whether to choose an FHA or conventional mortgage.

Need to know

• Mortgage rates shown on New American Funding’s website seem pleasantly low, but they can be reduced with three discount points and as much as a 40% down payment, which is only revealed when clicking through to advertising disclosures on a separate page.

Learn more: How FHA-approved condos work

How do FHA loans work?

FHA loans work like most mortgages do. They are underwritten by private FHA-approved lenders, so you apply with loan officers from the mortgage providers you choose, compare loan offers, and submit a final application for approval.

Lenders structure the loans to meet FHA standards so that the government can insure the mortgage. That protects lenders from exposure to defaults, allowing them to make more loans and secure their working capital.

FHA loans are subject to FHA mortgage insurance premiums (MIPs) paid for by the borrower, which we will cover more later.

Learn more: How much are FHA loan closing costs?

Tips for comparing FHA lenders

Look for lenders that offer the best combination of low interest rates and minimal fees, with personnel who are helpful, respectful, and show they want your business by clearly guiding you through the loan process.

• Use a mortgage calculator to determine how much of a monthly payment you can afford.

• Check your credit report and credit score so that you know your creditworthiness. You’ll need a minimum credit score of 580 to qualify for an FHA loan with a 3.5% down payment. Many credit card companies and financial institutions offer free credit score access.

• Consider various mortgage loan types to find out which one is best for you. FHA loans are great options, but you might find an even better fit.

• Determine how much down payment you can make. You only need 3.5% down for an FHA loan, but if you put down 10%, you can qualify with a 500 credit score and automatically remove FHA mortgage insurance after 11 years.

• Shop multiple lenders and compare loan offers. Pay close attention to the annual percentage rate you are offered.

• Select your best offer and get an official mortgage preapproval.

Learn more: The pros and cons of FHA loans

Alternatives to FHA loans

FHA vs. conventional loans

FHA loans are well-suited for borrowers with credit scores as low as 500 to 580. However, if your credit score is 620 or higher, you may qualify for a conventional loan. Two conventional mortgage programs, HomeReady and Home Possible, are also targeted at home buyers with limited savings, offering down payment requirements as low as 3%. That even edges out the FHA minimum down payment of 3.5%.

Some lenders offer the same conventional loan programs but reduce the required down payment to 1%. To find the lenders that offer a 1% down program, check out Yahoo Finance’s best lenders for first-time homebuyers.

Dig deeper: FHA vs. conventional loan — Which should you choose?

FHA vs. VA loans

As good as FHA loans are, they really can’t compete with loans backed by the Department of Veterans Affairs. For military service-connected borrowers, VA loans are most often your best bet. That’s because VA loans usually require no down payment or mortgage insurance, and they put a limit on closing costs.

A VA mortgage is a valuable benefit available to current service members, veterans, and eligible surviving spouses.

Learn more: FHA vs. VA loans

FHA vs. USDA loans

USDA home loans sound like they would be meant exclusively for farm and ranch properties. However, while most qualifying areas are rural, some suburban areas are also included.

FHA loan limits depend on local property values, but mortgages backed by the USDA (U.S. Department of Agriculture) are capped by household income. While FHA loans are governed by county loan limits, USDA loans are meant to help low- to moderate-income households earning no more than 115% of the local median household income.

Read more: FHA vs. USDA loans

FHA mortgage insurance

FHA loans require mortgage insurance regardless of how much you put down. FHA mortgage insurance premiums (MIPs) have two parts:

1. An up-front mortgage insurance premium (UFMIP) is due on closing day.

2. An ongoing annual MIP is paid in monthly installments with your mortgage payment.

The UFMIP payment is set at 1.75% of the mortgage loan amount. Your ongoing MIP cost depends on a various factors, including the mortgage principal, loan-to-value ratio, and loan term length.

You can remove FHA mortgage insurance after 11 years if you made a down payment of 10% or more when you bought the home.

Learn more: How FHA mortgage insurance works

Yahoo Finance mortgage lender methodology

Yahoo Finance identified the best mortgage lenders for FHA buyers by analyzing and grading leading national lenders, which were compiled and sorted by FHA loan volume from 2023 Home Mortgage Disclosure Act data. The lenders were then scored on a quintile scale for five criteria: the median interest rate offered to borrowers, rate transparency, median fees and loan costs, affordability factors including loan offerings and down payment assistance, and online educational resources and calculators featured on lender websites.

Review of the Nationwide Multistate Licensing System’s data on regulatory actions enabled a 10% penalty to the score of any lender with a mortgage-related administrative or enforcement action within the past five years.

FHA lenders that did not make our best FHA lender list

We seriously considered the following mortgage lenders with FHA loans for our best-of list, but they weren’t quite as strong as our top picks:

Best FHA lender FAQs

What is an FHA loan, and who qualifies?

An FHA loan is a government-backed mortgage designed for low- to moderate-income households. With a lower credit score threshold, borrowers may qualify with a credit score of 500 with a 10% down payment or 580 with 3.5% down.

Is there a downside to FHA loans?

The main downside to FHA loans is the extra costs, such as FHA mortgage insurance premiums (MIPs). You may qualify for a conventional loan with a credit score of just 620 — and likely pay fewer fees than an FHA loan requires. Because the FHA works primarily with underserved borrowers and the qualifying standards are flexible, the loan costs can be higher than on a conventional loan.

What will disqualify you from an FHA loan?

You may not qualify for an FHA mortgage if your credit score is below 500, you are delinquent on any Federal debt (including student loans) or have a Federal lien on your assets, or you have a debt-to-income ratio (DTI) over 57% (though lenders can set their own maximum DTI). You do not have to be a U.S. citizen to qualify for an FHA loan. Still, you must have lawful permanent resident alien status or be a non-permanent resident alien with a valid Social Security number and eligible to work in the U.S.

Is it hard to get an FHA loan right now?

Let’s face it, no home loan is easy to get — but FHA loans are the most flexible when it comes to qualifying. There will be a lot of paperwork, just as with all loans. You will also have to prove that you have a steady income and can make the monthly mortgage payment. The key is to ask questions, understand what you are signing, and prepare for an occasional bump in the road along the way.

Do sellers avoid FHA buyers?

A seller can refuse your offer for any reason, even if it is higher than someone else’s offer. One reason sellers might avoid an FHA buyer is that FHA loans often have more stringent appraisal standards. A seller may be required to make repairs to meet those HUD property guidelines. FHA borrowers may also be unlikely to afford large earnest money deposits that entice sellers — and FHA loans have a reputation for taking longer to close.

Who is the largest FHA lender?

Rocket Mortgage is the largest FHA lender by number of FHA loans issued, according to 2023 HMDA data.

Are all FHA lenders the same?

No, not all FHA lenders are the same. It’s true that the Federal Housing Administration has a set credit score and down payment that lenders must follow. However, each lender charges different interest rates and fees.

What credit score is good for FHA loans?

You can qualify for an FHA loan with a 500 credit score if you have a 10% down payment or 580 score with 3.5% down.

What bank is best for FHA loans?

The best companies for FHA loans are often mortgage lenders, not necessarily banks. However, you may be able to get a good deal on an FHA loan if you go through the bank you already use.

This article was edited by Laura Grace Tarpley