Compare Mortgage Rates on FHA Loans
If you want to buy a house and you’re like most Americans, you’re going to need a mortgage. The federal government knows this. It also knows that the real estate market plays a key role in the country’s overall economy. As a result, it uses the Federal Housing Administration (FHA) to make mortgages more accessible.
An FHA-backed loan can help you get a mortgage when you wouldn’t otherwise qualify. And even if you could get a loan another way, it’s worth considering this option. That FHA support lowers risk for lenders, so it might translate into a lower interest rate for you.
Before you choose a conventional (read: not government-backed) mortgage, it’s worth knowing about FHA loans and comparing interest rates and overall costs against your other options.
What is an FHA loan?
An FHA loan actually isn’t a type of mortgage. Actually, nearly any type of mortgage can fit into this category provided it has the backing of the Federal Housing Administration. You can get FHA loans with terms of 30 or 15 years, for example, or with fixed or adjustable interest rates.
The key is that in order to be an FHA loan, the loan needs to be insured by the Federal Housing Administration.
This insurance doesn’t cover you. Instead, it protects the lender. If you default on the loan (i.e., you don’t repay it), the FHA pays out to cover some of the lender’s losses.
With that insurance in their back pocket, lenders are more willing to offer loans to borrowers they might otherwise deny. In fact, with an FHA loan, you can technically get a mortgage with a credit score as low as 500.
Other key things to know here:
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The FHA sets limits on how much you can borrow, which vary by geographic area.
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FHA loans require the house to meet safety and livability standards from the U.S. Department of Housing and Urban Development (HUD), which oversees the FHA.
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FHA loans can only be applied to owner-occupied homes, so this option isn’t a fit if you’re looking to get a mortgage for a vacation home or investment property.
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FHA loans come with added costs in the form of mortgage insurance premiums (MIPs).
The pros and cons of an FHA loan
If you’re thinking about getting a loan insured by the FHA, weigh the upsides and the drawbacks. Be sure to compare rates and overall costs against other options for which you qualify, too.
Pros of a FHA loan
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If your credit score is 580 or above, you only need to put 3.5% down with an FHA loan. For people with a score of 500–579, the FHA requires 10% down for loans it backs. Lenders often set the baseline credit score for their conventional loans at 620 or above. If you’ve had trouble getting approved, the FHA insurance might be the missing piece.
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The FHA allows for a debt-to-income (DTI) ratio of 43%, and will go up to 50% if you can prove you’re in a good position to handle the loan (e.g., you have a good chunk in savings). That’s higher than some lenders will allow for their conventional loans.
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Because FHA backing lowers risk for lenders, they might offer you a lower interest rate than if you chose a conventional loan.
Cons of a FHA loan
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FHA loans come with mortgage insurance premiums that you need to pay upfront and monthly. If you get a loan term longer than 15 years (like a 30-year mortgage, for example) and put less than 10% down, you’re stuck with those monthly payments for the life of your loan (unless you refinance). You can remove your monthly MIPs in some cases if you put 10% or more down or have a loan term of 15 years or shorter. Regardless, this added cost might make the FHA loan more expensive than a conventional mortgage in the long run.
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Not all lenders offer these kinds of loans. You’ll need to specifically find a lender that has been cleared by the FHA. You can find a list of potential lenders on the HUD’s website. Because that site is fairly clunky, we have a resource that can help.
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Added steps like the HUD property inspection can make FHA loans more burdensome to get.
How to compare FHA Loan Rates mortgage rates
If you only take one piece of advice when you’re getting a mortgage, let it be this: compare rates from at least three different lenders. Doing so can save you thousands of dollars over the life of your loan.
To make it easier for you to put the work in here, follow these steps:
Step 1: Understand your borrower profile
First, you want to get a handle on how mortgage lenders are going to see you. If you look like you’re going to be able to repay your home loan fairly easily, they’ll offer you more favorable conditions. If you look high-risk, you’re going to pay more for your mortgage. Specifically, you’ll be charged a higher interest rate.
So, what makes a borrower low- or high-risk? To decide what kind of loan to offer to you (if any), lenders look at a lot of factors. The biggest ones here include:
- Your monthly income — you don’t want an overly large chunk to have to go toward paying your monthly mortgage bill, which lenders measure with your debt-to-income (DTI) ratio
- Your credit score, which essentially tells them how good you’ve been with managing money in the past
- Your loan-to-value (LTV) ratio (higher is riskier) — the price of the house and your down payment size both come into play here
If you’re not in good shape in any of these areas, putting in some work before you buy (e.g., working on your credit score, lowering your DTI ratio) can help you get a lower interest rate.
Step 2: Use rate tables to see what’s on offer today
There are lots of resources online that show you rate offers from leading lenders. Use a mortgage rate table to get a feel for what kind of interest rates are available from financial institutions that provide home loans in your area.
Ideally, that rate table lets you input personal information, like your credit score and the price of the house you want to buy. This way, the rates you get shown should align with what you’re actually eligible to get. A lot of lenders advertise low starting rates, but only the “best” borrowers will be approved for them once they apply.
Step 3: Get preapproved with three lenders
Once you’ve picked out a few lenders that look good to you, go through their preapproval process. That will mean filling out some paperwork, but it’s the best way to figure out what you can really qualify for in terms of loan size and interest rate.
Have financial documents — like your bank statement and pay stubs — handy to make it easier to complete your preapproval applications.
Step 4: Compare preapprovals
When you get preapproved, the lender should give you documentation about your potential mortgage. Ideally, this gives you a feel for the total amount you’re borrowing, the repayment term, the interest rate, fees, and closing costs.
Line up your quotes from each lender and go through them, paying special attention to the annual percentage rate (APR). This tells you how much you’ll pay each year for the loan including not just interest, but also fees. By looking at APRs, you get a clear idea of what you’ll truly pay if you choose that specific mortgage. This helps you identify the best option for yourself and your financial goals.
If you’re ready to start comparing FHA Loan Rates rates, use our rate table to get started. We have fields up top where you can input key details like your credit score range and zip code so we can best tailor the mortgage rate offers to you.