If you have less-than-perfect credit or a lower income, getting a mortgage backed by the Federal Housing Administration (FHA) could be a great option. The best FHA loan lenders are the ones that do the most to help borrowers in this situation become homeowners.
These companies set themselves apart from the rest by offering competitive annual percentage rates (APRs), more lenient credit score and debt-to-income (DTI) requirements, relatively quick closing times and more.
If you think an FHA loan might be your best shot at homeownership, here are five top lenders to consider.
Best FHA loan lenders
Compare the best mortgage lenders for FHA loans
Our expert writers and editors have reviewed and researched 14 popular lenders to help you find the best FHA loans. Out of all the lenders considered, the five that made our list excelled in areas across the following categories (with weightings): loan cost (30%), eligibility and accessibility (20%), customer service (20%) and ease of application (30%).
Within each major category, we considered several characteristics, including minimum APR, maximum allowed DTI ratio, minimum credit score requirements and applicable fees. We also evaluated each provider’s customer support options, borrower perks and features that simplify the borrowing process—like time to close and preapproval time.
Why some lenders didn’t make the cut
Of the 14 mortgage lenders that we reviewed, only a fraction made the cut. The lenders that didn’t have high enough scores to be included received lower ratings mostly due to having a lack of transparency around credit score and DTI requirements as well as preapproval and closing timelines. Some of the excluded lenders also had limited customer service options and poor customer reviews.
What is an FHA loan?
An FHA loan is a mortgage issued by a private lender and insured by the Federal Housing Administration. This backing by the FHA lowers the risk for lenders, which is why these loans come with less stringent requirements than conventional mortgages. This can make FHA mortgages a good option for borrowers with imperfect credit or limited funds for a down payment.
For example, if you have a credit score of 580 or higher, then FHA lenders might only require a 3.5% down payment — though if your score is between 500 and 579, you’ll typically need to put at least 10% down. In comparison, conventional home loans that aren’t backed by a government agency typically require a minimum credit score of 620. And while you might be able to put as little as 3% down, you’ll need a down payment of at least 20% to avoid private mortgage insurance (PMI).
Additionally, the FHA home loan program doesn’t have geographic restrictions like mortgages backed by the U.S. Department of Agriculture (USDA) or military affiliation requirements as loans guaranteed by the Department of Veterans Affairs (VA) do.
How do FHA loans work?
You can use an FHA loan to buy or renovate a home if you have a low or moderate income. FHA loans can have either fixed or adjustable interest rates and typically come with repayment terms from 15 to 30 years. Participating lenders also provide FHA options for refinances and reverse mortgages.
When buying a home with an FHA loan, the minimum down payment depends on your credit score. Many FHA lenders require a credit score of at least 580, with which you can put as little as 3.5% down. While you can technically qualify for an FHA loan with a score from 500 to 579 and a 10% down payment, it could be harder to find a lender willing to approve you.
In addition to meeting credit and financial requirements, your house must also satisfy the U.S. Department of Housing and Urban Development (HUD) Minimum Property Standards, which are checked through an inspection. The home must also be appraised by an FHA-approved appraiser, and you’ll need to occupy the home within 60 days of closing. Also note that an FHA loan for a new home can only be used for a primary residence, not a second home or investment property.
After completing the underwriting process, you’ll pay both an upfront and annual mortgage insurance premium (MIP). This fee allows lenders to provide more lenient minimum borrower requirements as the FHA guarantees the loan if a borrower defaults.
Different types of FHA loans
There are several FHA loan options, including:
- 203(b) loan: This is the standard FHA purchase loan. One- to four-unit properties are eligible if they satisfy the minimum property standards and FHA loan limits.
- 203(k) loan: The Section 203(k) rehabilitation program provides funds for fixer-uppers. The loan proceeds can cover the purchase price, repair costs and energy-efficient improvements. Mortgage refinances are eligible for funding, too.
- EEM: The FHA Energy Efficient Mortgage (EEM) program helps households finance improvements that could reduce their utility bills. The energy package — which includes the improvements that the borrower chooses to finance — is made with the help of a qualified home energy assessor.
- ARM: An FHA adjustable-rate mortgage (ARM) comes with an initial fixed-rate period before switching to an adjustable rate. This initial rate could remain fixed for the first one to 10 years, depending on which repayment term you choose. Additionally, you’ll typically get a lower fixed rate during this period than you would with a conventional fixed-rate loan.
- Streamline refinance: An FHA streamline refinance lets you refinance an existing FHA-insured mortgage to get a different rate, term and monthly payment — without needing a new appraisal or another credit or income check. To be eligible, you must have made at least six on-time monthly payments and have had your loan for a minimum of 210 days. While you can’t cash out your equity through this program, you can withdraw up to $500 in cash if there’s an excess after paying off your original loan.
- Cash-out refinance: This option allows you to tap into your home equity with a maximum 80% loan-to-value (LTV) ratio after you’ve made 12 consecutive on-time payments. This loan option is available to non-FHA loans as well, and you might consider it over a standard cash-out refinance for the flexible credit score requirements — although you’ll have to pay MIPs.
- HECM: A Home Equity Conversion Mortgage (HECM) is an FHA reverse mortgage. This option permits seniors to access their home equity for various home maintenance and general living expenses. The borrower can continue living in the house so long as the property taxes and homeowners insurance remain current.
How to qualify for an FHA loan
These are the minimum requirements you’ll need to meet to qualify for an FHA loan:
- Min. credit score: 500 (borrowers with scores of 580 or above can make smaller down payment).
- Min. down payment: 3.5% with 580+ credit score; 10% with 500 to 579 credit score.
- Max DTI ratio: Typically 50% or less, depending on the lender.
- Min. income: None, but current income must be reasonably likely to stay consistent for the first three years of repayment.
How to compare FHA loan lenders
Before applying for an FHA loan, it’s important to shop around and compare your options with as many lenders as possible. While the FHA guidelines are similar between institutions, there can be several lender-specific differences. Here are some critical factors to consider while comparing FHA loan lenders:
- Borrower eligibility: While FHA loans are technically available to homebuyers with a credit score between 500 to 570, several FHA home loan lenders only accept scores as low as 580. Remember that your credit score will also impact how much you’ll need to put down on an FHA loan.
- Loan options: There are many FHA loan programs and even the best FHA lenders might not offer each one. This means you could have to contact several institutions to find less common loan options.
- Interest rates: While rates on FHA loans tend to be lower than those of conventional loans, specific rates vary by lender. Getting quotes from multiple lenders based on your desired loan amount and down payment will help you see what rate you could potentially qualify for.
- Repayment terms: Terms on FHA loans typically range from 15 to 30 years. While a longer term will give you lower monthly payments, you’ll pay more in interest over time. If you can afford a higher payment, choosing a shorter term can help to reduce your total repayment costs.
- Closing costs: The FHA-imposed MIP is the same across the board, but the closing costs can vary from 2% to 6% of the loan amount. You can also see if the lender offers mortgage assistance programs to reduce your out-of-pocket expenses.
- Underwriting speed: Inquiring about the average time to close and on-time closing guarantees can help you avoid delays when you need to move in quickly.
How to apply for an FHA loan
If you’re ready to apply for a mortgage backed by the FHA, follow these steps:
1. Check your credit
When you apply, the lender will review your credit as part of the approval process. To see where you stand beforehand, check both your credit reports as well as your credit score. You can review your credit reports for free through a site like AnnualCreditReport.com. To get your credit score, either use an online credit-monitoring service or see if it’s available through your bank or credit card company.
2. Compare lenders and get pre-qualified
Comparing your options with as many FHA-approved lenders as possible can help you find a good deal on a loan that suits your needs. Some lenders allow you to get pre-qualified with only a soft credit check that won’t hurt your credit score, which will give you a rough estimate of how much you could get approved for.
You might also consider going a step further and getting preapproved to see your personalized rates and to have a firmer idea of which loan options are available to you. Note that mortgage preapproval could require a hard credit check, which could cause a slight but temporary drop in your credit score.
3. Pick a lender and submit an application
After you’ve put in an offer on a home and it’s been accepted by the seller, it’s time to submit a formal mortgage application with the lender you like best. The lender will perform a hard credit check to start the underwriting process to finalize your rate, fees and monthly payment.
Also be prepared to provide the required documentation, including proof of income, your two most recent income tax returns, current bank account statements and an official photo ID. The lender might also ask for utility bills and other statements if you have a thin credit profile.
4. Have the home appraised
An FHA-approved home appraiser will inspect the dwelling and verify it satisfies the HUD minimum property standards. Depending on the property’s condition, repairs might need to be completed before the loan can be finalized. Typically, your lender will set up the appraisal after you’ve applied, and you’ll pay the appraisal fee — usually at the time of application.
5. Sign closing documents
Once the underwriting process ends and if you’ve been fully approved, you’ll sign the closing documents and pay any upfront fees. The lender also might give you the option of rolling closing costs into the mortgage — though this can raise your loan amount and therefore increase your total interest costs.
Pros and cons of FHA loans
Like any type of mortgage, FHA loans come with both advantages and disadvantages to consider.
Pros
- Low credit score requirements (500 or above).
- Down payments as minimal as 3.5%.
- Might qualify with a debt-to-income (DTI) ratio as high as 50%.
- Multiple purchase, refinance and renovation programs available.
Cons
- All loans charge MIPs.
- Potentially strict property requirements.
- Private lenders might require a credit score of at least 580.
- Loan limits are lower than conventional conforming loans.
Alternatives to FHA loans
If an FHA loan doesn’t seem right for you, here are some other mortgage options to consider:
Conventional mortgage
A conventional home loan can require a down payment as small as 3% or 5%, depending on the lender and whether or not you’re a first-time homebuyer. You might also have to pay PMI if you don’t make a down payment of at least 20%, which requires monthly payments until you have at least 20% equity. However, this could potentially be less expensive than paying FHA mortgage insurance for the life of the loan.
The property requirements can be more lenient than those of FHA loans. However, you’ll generally need a credit score of 620 or higher to qualify. Borrowers can also typically have a maximum DTI ratio of 43%, though some mortgage lenders permit DTI ratios as high as 50%.
VA mortgage
Eligible military service members, veterans and their surviving spouses could qualify for a VA home loan, which doesn’t come with a down payment requirement. While there are no ongoing mortgage insurance premiums, VA loans do have a one-time funding fee.
VA loans can have higher loan limits and potentially lower interest rates than FHA loans. However, while the VA doesn’t specify a minimum credit score, many VA mortgage lenders require a credit score of at least 620.
USDA mortgage
USDA loans are available to borrowers earning a low or moderate income who live in eligible rural areas. These loans charge both an upfront and annual guarantee fee, similar to the MIPs of FHA products.
Similar to VA loans, while the USDA also doesn’t have a specific credit score requirement, private lenders often have stricter eligibility criteria. Depending on the lender, you might need a credit score of at least 640 to qualify for a USDA loan.
Frequently Asked Questions (FAQs)
If you don’t meet the FHA credit requirements, you won’t qualify for an FHA loan. “A borrower must have a minimum FICO [score] of 580 to get an FHA loan with 3.5% down,” says Joe Parsons, senior loan officer with Pinnacle Home Loans in Novato, California. “FHA will go as low as 500 if the borrower puts 10% down.”
Specific items in your credit history might also disqualify you. “[If you’ve] filed [for] Chapter 7 bankruptcy within 24 months, [you] will not be able to get an FHA loan,” Parsons says. “Someone who has filed [for] Chapter 13 bankruptcy can get a loan subject to the approval of the Trustee. The borrower must document at least 12 months of on-time payments to their repayment plan.”
Yes, all FHA loans have both an upfront mortgage insurance premium (UFMIP) and an annual MIP. As of 2023, the UFMIP is 1.75% of the base loan amount. The annual MIP is 0.45% to 0.95% for loans with terms of 15 years or less and 0.80% to 1.05% for longer terms, depending on the amount of your down payment.
Note that if you put at least 10% down, the annual MIP will be removed after the first 11 years of the term. With lower down payment amounts, it will remain for the life of the loan.
Yes, it’s possible to get an FHA loan with bad credit. While many FHA lenders require credit scores of at least 580 to qualify, some might accept scores as low as 500. Remember that having a score between 500 and 579 means you’ll need to put at least 10% down — more than the 3.5% accepted from borrowers with scores of 580 and higher.
Like with a conventional mortgage, you’ll pay 2% to 6% of the loan amount in closing costs on an FHA loan. These consist of lender fees as well as third-party fees related to the mortgage origination and home appraisal. You can also opt to pay for upfront discount points to reduce your interest rate as part of the closing costs.
The upfront MIP is also due at closing, and you’ll continue paying an annual MIP afterward.
Amy Fontinelle contributed to the reporting of this story.
