Best FHA Lenders: 4 Initial Questions to Ask

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Best FHA Lenders

An FHA loan stands apart from other lenders and loans in that the Federal Housing Administration guarantees the funding. In this quick guide, we cover when to consider an FHA loan, key questions to ask and the best FHA lenders out there.

1. What’s an FHA Loan?

With an FHA loan, if the borrower is unable to make mortgage payments, the FHA takes responsibility for paying the lenders back. Banks are aware of this, and because of it, borrowers may be able to secure a more jumbo loan than they otherwise would. 

An FHA loan also requires a lower down payment, which may make it easier for anyone to start the process of purchasing a property. This loan is especially suited for those who have non-traditional work situations such as self-employment or have gone through bankruptcy. The guarantee from a government administration raises the chance of getting funding when compared to traditional lending institutions, even if you’ve suffered severe financial difficulties in the past. 

2. When should you get an FHA mortgage?

You might be wondering about the best route to choosing one of the many FHA moqrtgage loans. Your options will depend on both your financial and housing needs. Your credit score is a standard indicator across all boards. No matter the institution you choose for a housing loan, you will need a minimum FICO score of 580 to qualify for the low down payment option. You can calculate your financial needs using one of the many online calculators, or you can go straight to a financial advisor. You need to know where you are and what your options are, so, take the time to get these numbers and have an accurate picture of your financial status. 

Mortgage approval is probably one of the most significant financing approvals you’ll experience. Buying a house is a priority, and responsibility for many, and mortgage lenders are happy to assist you accordingly. Nowadays, there are many mortgage options, with some of the largest lenders operating solely online in addition to more traditional face-to-face or brick-and-mortar lenders. 

The process of being approved depends on the specific FHA loan requirements proposed by the different lenders. That means you can find various offers and choose what best fits your situation. Search the FHA-approved lenders offers and review each one thoroughly before making a decision. 

To get the best deal, keep the following in mind:

Credit score

As mentioned earlier, your credit score is an essential indicator when applying for a loan. If you have a credit score of 500, you are going to have minimal lending options in terms of loan packages, and the lender may require a higher down payment. To take advantage of lower down payment packages, as low as 3.5%, you will need a credit score of at least 580, according to the general FHA loan criteria. 

Some lenders for FHA loans may require credit scores of 600 and up. A higher score typically reduces down payment requirements and provides better interest rates. Also, the larger your down payment, the lower your interest rate and monthly payment will be. 

Having a lower credit score will keep your down payment in the 10%-20% bracket. You might not know how big of a difference that makes. However, it is going to be very clear when you calculate the percentage of your home’s overall cost. Be sure to make smart decisions and plan your expenses. Are you going to be able to pay 20% down? Especially outstanding if you have other credit obligations, like credit card debt.

Best FHA Lenders

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Debt-to-income ratio

Another critical factor in the mortgage approval process is the evaluation of your debt-to-income ratio. (DTI) Different types of FHA home loans have different requirements. Again, online calculators are your best friend to see what loans you qualify for. By getting your figures, you will know what to present to lenders. The most important thing they want to know is that you will be able to keep up with your monthly payments. A certain amount of your income will have to be set aside to make the payments. 

When FHA mortgage lenders know your resources and debts, they will trust you with a higher loan amount. Less than 36% DTI is desirable. The debt-to-income calculation might not include your everyday expenses. For this reason, you should be careful when assessing what you can pay regularly. 

Mortgage rates

The lender needs to approve your ability to pay back your loan, but what about your needs? What is the interest rate that you will accept? FHA mortgage rates can vary significantly. Also, FHA lenders have various fees they add to the payments for the borrowed money. They combine the loan payments and monthly fees. Make sure to inspect both thoroughly to get a good understanding of the actual amount that you are signing up to pay back.

FHA Mortgage insurance

The mortgage insurance makes sure that the lender is secure during the loan repayment period. If your down payment is less than 20%, mortgage insurance will be required. You will have to pay an upfront premium of roughly 1.75% of your loan. The sum can be distributed through your regular payments, in which case you will be borrowing a bit more. Or you could pay it with the closing costs of the loan. Besides the upfront premium, there is also a monthly premium that comes in at around 0.45%-1.05% per year. The company calculates it, based on the amount of the FHA loan, the down payment size, and the loan period. 

With a down payment of 10% or more, you could benefit from only paying mortgage insurance premiums for 11 years from the start of the loan. FHA mortgage insurance could get canceled out if you refinance into a conventional loan. A 10% down payment is a requirement for that to happen. 

3. What are the details of FHA loans? 

Adjustable-rate mortgage

Some FHA-approved lenders offer adjustable-rate mortgages. With this type of mortgage, you could have changing interest rates over the years. Changes start after an initial fixed period, after which your interest rate starts fluctuating, depending on the market. This change will be reflected in your monthly payments. 5% is the maximum increase above your original rate. With a variable rate FHA home loan, you can get lower interest rates at the start of the period. You can also get lower down payments and reduced fees.

FHA Streamline Refinance

You may be looking for refinancing options for your already existing loan. That is not uncommon, and the FHA provides these types of loans as well as the ones for first-time home buyers. It’s called the FHA Streamline Refinance program, because of the speed of the procedure. You could reduce an FHA loan you already have, to one with a lower interest rate. If you have been punctually paying your mortgage for the past year, you can apply and lower your loan rate without any credit checks. 

The existing mortgage loan gives the borrower an advantage. If you have already proven to be trustworthy, you can swiftly proceed with the refinance process. The new loan you will be taking out has to be smaller than the initial FHA loan for buying the property unless there is a difference in the market value of the home. You could then qualify for a more substantial amount.

Overall, the application steps are easy to accomplish over the phone or online. You might not even need to meet your loan officer, but the lending institution could still want your signature on some paperwork. 

Down Payment Assistance

You can find financial aid for a downpayment. There is a list of government or private entities all around the United States. These companies assist borrowers with paying their down-payments and closing costs. There are programs and grants offered by different companies, not the FHA itself. You could find a convenient assistance program, depending on your location. Funding can be in the form of grants, deferred payments, forgivable loans, and other arrangements. The requirements depend on the state and lending institution. 

FHA 203k loan

The 203k loan combines two different types of loans into one. On the one hand, it serves to buy a home and on the other for home improvement. It could be a reliable option for anyone that considers buying a not-so-perfect property and renovating it. This could help if you have found the desired location at a reasonable price and want to buy, regardless of the house’s condition. If you plan to spend a lot on repairs and upgrading, the FHA 203k loan will provide you with enough resources for purchasing and improving. 

4. What are the best FHA lenders?

Before you decide to take out a specific FHA mortgage loan for your housing needs, get familiar with the popular choices amongst lenders. Not only do they have different FHA guidelines, but they also specialize in different loan categories. You might qualify for a loan from one of the FHA-approved mortgage lenders, but not be able to fit the requirements for a similar one from other mortgage companies. Also, there are essential differences in the contracts for first-time buyers and current homeowners. Even if your situation is unique, there is a solution out there for you. 

Quicken Loans

Quicken Loans is the biggest FHA lender in the USA. What people especially like about them, is the simple online application. They offer the perfect service for anyone who doesn’t want to go through the full process of waiting in line. The convenience is that you could quickly provide your credit score information and get an online verification of your income. It’s a very simplified process, and you can still get in touch with a mortgage advisor to help you. 

Their fixed-rate mortgage periods are between 15 and 30 years. This is a non-adjustable interest rate for the entire life of the loan. Your payments will only be affected if your taxes and insurance premiums change. The fees are low across the board, and you could get benefits if you are a military veteran, on active duty or if you are a surviving spouse. On a 30-year fixed period loan, you could opt-out of having to pay mortgage insurance, as long as you make a 20% down payment. With a 5-Year ARM Loan, you pay the lowest rate available for the first five years and have the chance to refinance at that time. 

For first-time homeowners, Quicken Loans also offers lower-cost down payment for the 30-Year Fixed FHA Loan. You could find one with down payments at only 3%. Of course, the low rates much depend on your credit history and loan-to-value ratio, so make sure to speak with a Home Loan Expert or use one of the Quicken Loans online calculators. There you can calculate the possible mortgage payments and fees, according to the current rates. 

Rocket Mortgage

Rocket Mortgage has been the new leader on the FHA Lenders market for the past few years. The most important thing to know about them is that they are an online provider, developed by Quicken Loans. When you use Rocket, you are using Quicken by proxy. Quicken takes and processes the mortgage deals. The online services they provide are arguably the best, and that is just one of their strengths.

You can find all the information on their site and send your application with no assistance needed. The bank-level encryption of the online platform promises a secure experience. You can call and talk to an Account Advisor if any problem arises. Generally, it is the fastest procedure out there. You get an immediate offer, based on the statements you provide. Afterward, you can proceed to apply for the FHA loan, without leaving your house. 

FHA Loans can serve you in buying a new home and also to refinance your current mortgage. The origination fees for the FHA loans start at around 1% of the loan amount. You can pay additional discount points to access lower interest rates. To get access to a greater variety of FHA Loans, you should have a credit score of at least 580. What you could do right now, is sign up for an account and use the tools to generate your personalized offers. 

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Fairway Independent

Fairway Independent is an established lender, that covers all types of mortgage, including FHA and VA loans. Again, the credit score you should aim for is no less than 580. With Fairway Independent, you can find an excellent maximum allowable debt-to-income ratio and less than 5% down payment options. Your rates are determined when submitting personal information on their site. Fairway is popular with its fixed-rate loans that last from 10 to 30 years. You wouldn’t be able to find information about the adjustable-rate loan in the FHA guidelines, so that would require additional inquiries. 

There is an easy-to-use FHA Loan Qualifier on their website to help you get accustomed to their FHA loan programs. You will receive offers that are suitable for your case and will be able to compare terms, fees, and rates across the board. 

Best FHA Lenders

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Guild Mortgage

Guild Mortgage lets you pick out a loan offer from the various state and local housing agencies with whom they work. The company operates and is famous for its first-time owner mortgages. The down payments for FHA loans are lower than most providers, but their lender fees can go over $1,400. The company is still growing and spreading its offices around the country. It provides borrowers with the traditional face-to-face experience of getting a loan. They work to establish a sense of trust between the company and first-time buyers. Almost 40% of the provider’s business is FHA and VA deals.

When approving FHA financing, Guild accepts bank statements. That makes the lender stand apart from others; the lender requires tax returns to confirm income. In that way, a customer who is self-employed or owns a small business could quickly get approved for an FHA loan. 

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Your Next Steps

FHA Lenders have various strengths, and as long as you know what you desire for yourself, you will find the right one. Always start with assessing your financial resources and planning. The home you will be investing in will probably last you a long time. It’s a big commitment, so make sure to spend time and take care of picking the best mortgage plan. The lender which you choose should meet your customer service needs as well as ease of the process. Comparing can be easy, as long as you get your personalized offers from different providers. So don’t hesitate and start your FHA loan evaluation now. The faster you get a loan, the quicker you can set out to purchase your desired home. 

What is the most challenging step for you when trying to buy a home of your own?

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