Buying a home can be a daunting task. However, there are programs in place to make it a little easier. One of the ways you can get a mortgage, even if you don’t have a big down payment or a perfect credit score, is the FHA loan program.
Understanding FHA loans can help you buy a home that you can afford. Here’s what you need to know about getting an FHA loan and the best FHA lenders.
How Do FHA Loans Work?
The FHA loan program is a guarantee program through the federal government. The government doesn’t actually make the loans, though. Instead, loans are actually originated by individual lenders who are approved by the government. The Federal Housing Administration backs the loans so lenders feel more comfortable with borrowers that might seem to present something of a higher risk.
With an FHA loan, you can put down as little as 3.5% for a down payment if you have a minimum credit score of 580. Additionally, there are FHA loans available for those with even lower credit scores, as long as they put down 10% of the purchase price.
You apply for a loan much as you would in any other circumstance. The lender will still review your credit history, income information, and other factors to determine whether you’re ultimately approved, how much you can borrow, and your interest rate. You’ll have to pay a mortgage insurance fee during your loan, though, so be aware of that added cost.
Before you choose a mortgage lender, though, it’s important to compare your options. Just as you can with any other loan quote, you can shop around and compare offers from different FHA mortgage lenders. Start by looking at the best lenders for FHA home loans, and you’ll have a better chance of receiving terms that work best for you.
Best Lenders for FHA Loans, Including Online Marketplaces
Now that you understand how FHA loans work, it’s time to figure out where you can go to get started. You can start with brick and mortar lenders, perhaps with your own bank or credit union. However, before you make a decision, you should also look online.
Here are some of the best FHA lenders, as well as marketplaces where you can easily compare your options.
One of the first places to look for FHA loans is LendingTree, an online marketplace. Rather directly making mortgages to borrowers, LendingTree offers a platform where you can submit your information once, and then have various lenders compete for your business by offering you quotes.
When you fill out the form, make sure you indicate that you’re looking for an FHA loan. When you do that, you can get as many as five loan offers minutes after submitting your application. With the information you get from LendingTree, you can have a pretty good idea of what you qualify for and what you can expect.
If you live in a state serviced by Lenda, you could close on your FHA loan in as little as 13 days. That’s much faster than many mortgage closing timeframes. This direct lender can provide you with a quote that you can then compare to what you’re getting from other FHA lenders.
One of the selling points to Lenda is the fact that you can upload your documentation online and avoid a bunch of unnecessary paperwork. Lenda makes the process smooth and simple. They also don’t charge origination fees. However, access is limited to the following states:
For residents of these states, though, access to Lenda’s opportunities can mean another FHA loan possibility. Additionally, Lenda is expanding, so you might have access soon.
You can live in any state and get access to FHA loans through loanDepot. This company is known for the fact that loan officers don’t get any sort of incentive to encourage you to take one action over another. This can provide you with peace of mind, knowing that the information you get will be best-suited for your needs.
When you use loanDepot, though, you need to watch for origination fees. You might have to pay between 1% and 5% of the home’s purchase price. Carefully consider terms from other lenders before moving forward.
Over the years, Quicken Loans has become one of the most trusted lenders in the business. In addition to offering conventional loans, you can also get an FHA loan through Quicken Loans. In fact, Quicken is the largest FHA lender in the country.
Quicken Loans has a completely online application process and uses technology to verify employment and income for the majority of applicants. Even if you don’t end up with an FHA loan, Quicken Loans is very flexible and can help you find a loan that fits your needs.
New American Funding
Access to FHA loans is a hallmark of New American Funding, which offers a number of different programs. With this company, you can even explore the possibility of an FHA renovation loan.
In addition to offering access to numerous programs, they also use manual underwriting, meaning that alternative credit scoring data can be relied on. This can be useful if you haven’t been able to build up a more traditional file. While you still have to meet FHA requirements, other underwriting requirements might be a little more flexible.
In addition to allowing applicants to provide nontraditional trade lines for underwriting consideration, Flagstar Bank is also known for offering loan packages meant for professionals. In many cases, there are specific needs associated with being a CPA, architect, doctor, or lawyer. This is a bank that offers professional loan packages that can meet those needs.
Flagstar’s flexibility can be a great asset. However, it’s also important to understand that you might end up with a steep origination fee. Weigh that against the benefits and compare your Flagstar quote with other options.
The mortgage arm of CitiBank allows you access to the resources of one of the most recognized nationwide banks. Not only can you access FHA loans through CitiMortgage, but you can also take advantage of other programs, particularly those that benefit military families.
However, you can’t complete the mortgage application online. It might not be a bad idea to get a few online FHA loan quotes and bring them with you when you meet with a CitiMortgage loan officer.
Another high-profile national bank, U.S. Bank offers a number of mortgage products. In addition to getting started online, you can also call a number and speak with a mortgage specialist — including someone near you.
U.S. Bank prides itself on the ability to offer personal service so you can apply for your loan using what’s most comfortable for you.
How to Compare FHA Loan Quotes
Now that you have at least three or four FHA loan quotes, it’s time to compare them. You want to make sure you’re comparing apples to apples, though. Some of the items that you need to watch for in a loan offer include:
- Loan origination fees
- Interest rate (including whether it’s fixed or adjustable)
- Mortgage insurance
- Required down payment
- Length of loan term
- Closing costs
- Estimates for property tax and home insurance
Make sure the terms are roughly the same so you can make a good comparison. You might also want to see if your potential lenders are willing to run different scenarios if you’re willing to pay points.
Understand that you might need to run a few numbers on your own to determine which trade-offs are worth it. For example, one mortgage lender might have no origination fees but charge a higher interest rate. Depending on interest rates, you might actually be better off going with a lender that charges an origination fee but offers interest rates low enough to save you more money in the long run.
Carefully consider these items, and look at the total cost of the loan. In the end, you want a loan that is likely to cost you the least amount of money, while still allowing you to afford your monthly payments.