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Best FHA Lenders June 2024

Max SmithBy No Comments10 Mins Read


Without loans insured by the Federal Housing Administration (FHA), thousands of people probably wouldn’t be able to afford to buy their first home. Over the past 90 years, FHA-insured mortgages have allowed lenders to serve underserved households.

Yahoo Finance researched lenders that offer FHA loans and examined federal records on lending practices such as interest rates, loan costs and ability to pay factors to determine the best FHA lenders worth considering.

PennyMacPennyMac

Yahoo's takeYahoo Finance's analysis earned PennyMac a 5-star rating in the mortgage rates category due to its lower average rates compared to competitors. Its online features were also impressive.

Performer: Four

Read our full PennyMac mortgage review

Key Benefits

  • When you use a Pennymac affiliated real estate agent, you can receive anywhere from $350 to $9,500 in cash upon closing.

  • If interest rates drop after you pay off your mortgage with Pennymac, you can get a $2,000 credit towards your payment costs if you refinance within three years.

Need to know

  • The advertised FHA mortgage rates require a credit score of 680, higher than the FICO 580 required by the FHA.

  • According to the 2023 J.D. Power Mortgage Origination Satisfaction Study, PennyMac has a below average customer satisfaction rating.

Guaranteed RateGuaranteed Rate

Yahoo's takeGuaranteed Rate is a preeminent FHA lending institution that offers first-time homebuyers the option to provide in-person service at any of hundreds of branch locations.

Performer: Four

Read our full Guaranteed Rate Mortgage review

Key Benefits

  • As a personal service option, Guaranteed Rate has hundreds of branches across the country.

  • Guaranteed Rate offers a wealth of educational resources, and the section titled “What to Consider Before Buying a Home” is particularly helpful.

  • Lenders offer non-conformed mortgages for self-employed borrowers and those who want to obtain a loan using alternative credit criteria.

Need to know

  • The advertised interest rate takes into account multiple discount points and is based on a 20% down payment and a FICO score significantly above the national average.

  • According to the 2023 J.D. Power Mortgage Origination Satisfaction Study, Guaranteed Rate has a customer satisfaction rating that is well below average.

learn more: How FHA Cash-Out Refinance Works

Rocket MortgageRocket Mortgage

Yahoo says: Rocket Mortgage has the largest retail FHA loan volume in the nation and ranks among the top of all lenders in customer satisfaction. Unfortunately, Yahoo Finance found that it has high loan costs and little transparency on interest rates.

Performer: 3

Read our full Rocket Mortgage review

Key Benefits

  • Rocket Mortgage is offering grants of up to $7,500 towards down payments and closing costs to qualified first-time homebuyers in 21 U.S. metropolitan areas.

  • Homebuyers who purchase a home through partner company Rocket Homes can earn a 1.25% closing cost credit up to $10,000 on loans financed by Rocket Mortgage.

Need to know

  • According to the most recent J.D. Power Mortgage Lending Satisfaction Study, Rocket Mortgage ranks second among mortgage lenders in customer satisfaction.

  • Rocket also received high ratings for satisfaction with mortgage servicing (collecting loan payments from borrowers and distributing funds to third parties).

guildguild

Yahoo's take: Guild Mortgage excels at serving the needs of homebuyers who want to qualify with alternative credit, such as rent history or utility payments. But Guild falls short when it comes to customer satisfaction.

Performer: 3

Read our full Guild Mortgage review

Key Benefits

  • FHA borrowers who don't have traditional credit scores can qualify for the Complete Rate program using alternative credit information, such as rent history, utility and auto insurance payment history, and an analysis of bank statements.

  • First-time homebuyers who meet the income criteria will be offered a $2,000 gift card to The Home Depot and $500 to $1,500 in closing costs if they take out a mortgage with a 3% down payment. This is specific to conventional loans, not FHA mortgages, but it could be a factor when deciding between an FHA loan or a conventional loan.

Need to know

  • According to the most recent J.D. Power Mortgage Origination Satisfaction Study, Guild Mortgage ranks near the bottom in customer satisfaction.

  • I couldn't find any sample mortgage rates on the website.

New American fundsNew American funds

Yahoo says: New American Funding has a five-star rating in Yahoo Finance's mortgage affordability category due to its wide range of loan options, but it does lack transparency on mortgage rates.

Performer: 3

Read our full review of New American Funding

Key Benefits

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

  • Our FHA page has lots of educational content on FHA loan requirements, FHA loan types, benefits of each FHA loan term, and more.

  • The Path to Homebuying program is available to first-time homebuyers who need assistance with up to $8,000 for down payments 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 between an FHA mortgage or a conventional mortgage.

Need to know

learn more: Down payment assistance — how it works and how to qualify

FHA loans work the same way as most mortgages: Underwritten by a private lender, you apply to a loan officer from your chosen mortgage provider, compare loan offers, and submit a final application for approval.

Lenders make loans to meet FHA standards so the government can insure the mortgages, which protects them against the risk of default and allows them to make more loans to have working capital.

FHA loans are subject to FHA mortgage insurance premiums (MIPs), which are paid by the borrower.

learn more: What is mortgage insurance and how much does it cost?

Look for a lender that offers the best combination of low interest rates and minimal fees, and has representatives who are friendly, courteous, and will guide you through the loan process to demonstrate they want your business.

  • Use a mortgage calculator to determine how much you can afford to pay each month.

  • To find out your credit standing, check your credit report and credit score. To get an FHA loan with a 3.5% down payment, you need a credit score of at least 580. Many credit card companies and financial institutions offer free credit score access.

  • Explore the different mortgage types to find which one is best for you: FHA loans are a great option, but you might find one that's a better fit.

  • Decide how much of a down payment you can afford: FHA loans only require a 3.5% down payment, but if you put down 10%, you can qualify with a credit score of 500 and have your FHA mortgage insurance automatically removed after 11 years.

  • Compare loan offers from multiple lenders. Pay close attention to the APR you're offered.

  • Choose the best offer and get your official mortgage pre-approval.

learn more: How the FHA Streamline Refinance Program Works

FHA loans are suitable for borrowers with credit scores between 500 and 580. However, you may be able to qualify for a conventional loan if your credit score is 620 or higher. Two conventional mortgage programs, HomeReady and Home Possible, also target homebuyers with limited savings and require a minimum down payment of 3 percent, which is slightly higher than the FHA's minimum down payment of 3.5 percent.

Some lenders offer the same conventional loan programs but reduce the required down payment to 1%. To find lenders that offer 1% down payment programs, check out Yahoo Finance's “Best Lenders for First-Time Home Buyers.”

Learn more: FHA Loans vs. Conventional Loans — Which Should You Choose?

While FHA loans are certainly good, they can't compete with loans guaranteed by the Department of Veterans Affairs, and for military-connected borrowers, a VA loan is almost always the best option, since they typically don't require a down payment or mortgage insurance and have limitations on closing costs.

VA home loans are a valuable benefit available to active duty military members, veterans, and eligible surviving spouses.

USDA mortgages appear to only cover farm and ranch properties, although most of the areas they cover are rural, although they also include some suburban areas.

FHA loan amounts are limited by local property values, while USDA-insured mortgages are capped by household income. FHA loans are governed by county loan limits, while USDA loans are intended to help low- to moderate-income households that make no more than 115% of the local median household income.

Yahoo Finance identified the best mortgage lenders for FHA buyers by analyzing and ranking the nation's largest lenders compiled and categorized by FHA loan volume from Mortgage Disclosure Act data for 2023. Lenders were scored on a quintile scale based on five criteria: median interest rate offered to borrowers, rate transparency, median fees and loan costs, ability-to-pay factors such as loan offerings and down payment assistance, and online educational resources and calculators listed on the lender's website.

Further analysis of the latest J.D. Power U.S. Mortgage Lending Satisfaction Study awarded a 5% bonus to lenders whose customer experience scores exceeded the survey average.

A review of data on regulatory actions from the National Multi-State Licensing System has resulted in a 5% penalty being imposed on the scores of lenders that have had mortgage-related administrative or enforcement actions within the past five years.

We seriously considered the following mortgage lenders offering FHA loans for our best list, but they weren't as strong as our top picks.

FHA loans are government-insured mortgages designed for low- to moderate-income households. They have lower credit score standards, allowing borrowers to qualify with a 10% down payment and a credit score of 500 or a 3.5% down payment and a credit score of 580.

The average credit score in the United States in 2023 was 715, but if you have a credit score of 620, you may be able to qualify for a conventional loan, which may have lower fees than an FHA loan. Because FHA primarily targets underserved borrowers and has flexible qualification criteria, the cost of the loan may be higher than a conventional loan.

You may not qualify for an FHA loan if your credit score is below 500, if you have past due federal debt (including student loans), if you have a federal lien against your assets, or if your debt-to-income ratio is above 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; however, 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 United States.

Let's be honest, mortgages aren't easy to get. But FHA loans offer the most flexibility when it comes to qualification. Like any loan, you'll need a lot of documentation. You'll also need to prove that you have a steady income and can make monthly mortgage payments. The key is to ask questions, understand what you're signing, and be prepared for the occasional hiccup along the way.

Sellers can reject offers for any reason, even if your offer is higher than others' offers. One reason sellers avoid FHA buyers is because FHA loans often have stricter appraisal standards. Sellers may be required to make repairs to meet HUD's property guidelines. Also, FHA borrowers may not be able to afford the large deposits that tempt sellers, and FHA loans have a reputation for being slow to close.

This article Laura Grace Tarpley



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