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If you have a lower credit score or are looking for a low down payment, Federal Housing Administration (FHA) loans may be the right option for you. However, they can be more complicated.
A credit score of at least 500, a down payment of at least 3.5% (depending on your credit score), a debt-to-income ratio of no more than 50% and two credit accounts (ex: a credit card and a car loan) are a few of the things you'll need.
Remember, you’ll also want to take into account mortgage insurance premiums since they are required by FHA lenders. The mortgage insurance protects the lender from borrower defaults.
It’s always smart to shop at least three lenders before taking out a mortgage. That way you can compare all-in costs. Once you have multiple offers in your hand, you can compare loan terms such as fees, rates, time to close, the availability of online application and loan tracking, and customer service offerings.
Ideal for FHA borrowers who like online convenience. Quicken Loans provides just about all the services your neighborhood lender does — with online convenience. Quicken is the largest FHA lender in the nation and a mortgage-technology leader.
Ideal because it combines an app-easy experience to FHA loans. Rocket Mortgage boils down the government-lending process of FHA loans to an simple-to-complete smartphone app process.
Ideal for borrowers looking for a wide variety of mortgage types and products - including FHA loans. J.G. Wentworth has expertise with low-to-moderate income lending.
Ideal for home buyers and refinancers who want an FHA mortgage and need to be evaluated using nontraditional credit criteria. New American Funding will use manual underwriting to evaluate borrowers, allowing flexibility for borrowers with low credit scores.
“FHA’s standard underwriting criteria is rolled up into a ‘scorecard’ that considers many factors related to income and debt,” Brian Sullivan, HUD public affairs specialist, told NerdWallet. “Under certain conditions, particularly when a borrower doesn’t fit into our general scorecard requirements, a manual underwriting is required.”
That means if your situation doesn’t neatly fit within all the guidelines, a lender may consider your loan application as a one-off instance, an exception. Frankly, lenders aren’t always eager to do that.
As an alternative, you can work on getting preapproved for your mortgage loan to lock in your interest rate.
NerdWallet’s star ratings for mortgage lenders are awarded based on our evaluation of the products and services that lenders offer to consumers who are actively shopping for the best mortgage. The six key areas we evaluated include the loan types and loan products offered, online capabilities, online mortgage rate information, customer service and the number of complaints filed with the Consumer Financial Protection Bureau as a percentage of loans issued. We also awarded lenders up to one bonus star for a unique program or borrower focus that set them apart from other lenders. To ensure consistency, our ratings are reviewed by multiple people on the NerdWallet Mortgages team.