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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. With an , you could qualify for a mortgage with a lower credit score, as little as 3.5 percent down and a cap on closing costs. These tips can help you find the for you.
Shop multiple FHA lenders
, not the federal government, offer FHA loans, and each lender has their own and fees, which is why it’s so important to shop around. Plus, some lenders have more lenient qualification requirements than others. Compare your all-in FHA mortgage costs with at least three top lenders. Your favorite bank or credit union might already be an FHA-approved lender already, so check there first. It might be helpful to enlist a who specializes in FHA loans, says Casey Fleming, a Silicon Valley mortgage advisor and author of “The Loan Guide: How to Get the Best Possible Mortgage.” A broker will be in the best position to offer meaningful and accurate advice that can guide both your short-term and long-term homeownership goals. Because you can never eliminate the ongoing on FHA loans, also consider a mortgage lender who can help you compare the long-term costs of. When shopping around for the best FHA mortgage lenders ask
Which FHA loan is best for my needs? There are almost a dozen different FHA loan programs. Your lender should be able to tell you which options will be best for you and the pros and cons of each. What are the current mortgage interest rates? Are the lowest available rates quoted to borrowers updated daily or weekly? Do you offer down-payment assistance? Select lenders nationwide offer FHA down payment assistance to select borrowers. Is there a rate lock available, how long is it and is there a fee? Many lenders let you lock in your interest rate for a set period while you’re shopping for a home. This can make the cost of your mortgage more predictable and could be a smart financial move, especially considering mortgage rates have been trending upward Are there any penalties or fees to be aware of? Some lenders charge a prepayment penalty if you pay the loan off early or refinance. There could be other fees and penalties the lender imposes, too. So, be sure to inquire about loan origination, transaction and settlement fees as well. How long does it typically take to close? If you’re on a tight timeline, you’ll want to find a lender who can close quickly or on your schedule. What are the upfront costs? Ask your lender what closing costs you’ll have to pay, and whether you’ll need to pay for mortgage points to attain the rate you were quoted. Which FHA loan is best for my needs? There are almost a dozen different FHA loan programs. Your lender should be able to tell you which options will be best for you and the pros and cons of each. What are the current mortgage interest rates? Are the lowest available rates quoted to borrowers updated daily or weekly? Do you offer down-payment assistance? Select lenders nationwide offer FHA down payment assistance to select borrowers. Is there a rate lock available, how long is it and is there a fee? Many lenders let you lock in your interest rate for a set period while you’re shopping for a home. This can make the cost of your mortgage more predictable and could be a smart financial move, especially considering mortgage rates have been trending upward Are there any penalties or fees to be aware of? Some lenders charge a prepayment penalty if you pay the loan off early or refinance. There could be other fees and penalties the lender imposes, too. So, be sure to inquire about loan origination, transaction and settlement fees as well. How long does it typically take to close? If you’re on a tight timeline, you’ll want to find a lender who can close quickly or on your schedule. What are the upfront costs? Ask your lender what closing costs you’ll have to pay, and whether you’ll need to pay for mortgage points to attain the rate you were quoted. Know your credit score
It’s crucial to know your credit score before you apply for an FHA loan. For one, your score might be better than you think — even good enough for you to qualify for a conventional mortgage. Keep in mind that if your credit score is especially low, your lender options will likely be limited. While the hard cutoff for approval of an FHA loan is a credit score of 500, Fleming says some lenders won’t work with you if your credit score is below 580. Others set even higher minimums, so you may need a score of 620 or higher to be considered for a loan. If your credit score is in the murky area between 500 and 579 where you’ll be required to put at least 10 percent down, you might need to before you apply if you don’t have that much cash on hand.
Understand how closing costs work
The U.S. Department of Housing and Urban Development (HUD) oversees the FHA program, and you can expect closing costs between 2 percent to 6 percent of the loan amount. The FHA also allows sellers and home builders to pay some of your closing costs. If the lender is amount, which is another possibility, you’ll likely pay a higher interest rate and have a higher loan balance. Within three days after applying for your FHA loan, you’ll receive a . To find how much the lender is charging, look under the “Closing cost details” section at “Origination charges.” These fees differ by lender and might be . If you think you’ll need help, keep in mind you could qualify for or help with closing costs. There are also that can be paired with an FHA loan to help you cover some of the upfront costs of purchasing a home.
Know your APR
Finally, don’t forget to measure the impact of the APR, or annual percentage rate, you qualify for. Remember, there’s a . It’s easy to assume FHA loans would all have the same APR, but this couldn’t be further from the truth. “The FHA doesn’t set interest rates or fees,” says Fleming. “Each lender can set their own, so there can be quite a lot of variance between lenders.” You’ll find the interest rate the lender is charging on the front page of your loan estimate under “Loan terms.” The APR is on the third page under “Comparisons.” Lightbulb Bankrate Insight Bankrate’s can help you determine the long-term costs of your mortgage and how it might stack up to other offers. FHA loan drawbacks and limitations
Buying a home with only 3.5 percent down and a competitive interest rate might seem like a dream come true, but it’s important to note these loans have some downsides. The most notable drawback of FHA loans is that they require the borrower to pay mortgage insurance premiums (MIP). There’s an upfront MIP of 1.75 percent of the loan amount, which is paid when you get the loan. Then there’s an annual MIP that varies from 0.45 percent to 1.05 percent, depending on the loan term, loan amount and the loan-to-value (LTV) ratio. If you put down less than 10 percent, you won’t be able to cancel annual MIP, as you could with a conventional loan. If you put more than 10 percent down on an FHA loan, however, you can have the insurance canceled after 11 years, says Stacey Elshehaby, processing manager of Silver Fin Capital Group based in Great Neck, New York. Another way to remove FHA mortgage insurance is to when you have at least 20 percent equity in your home. Bottom line
FHA loans aren’t right for everyone, but they can work well for borrowers who have shaky credit profiles and limited funds to get into a home. The best way to find out if an FHA loan is right for you is to shop around with FHA-approved lenders to learn about your options. FHA lenders can look at your income, credit and overall goals to see what type of loan best suits your needs. SHARE: Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and CreditCards.com, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC.