FHA loan rates

An FHA loan can be a viable path to homeownership for many types of buyers. Here we’ll look at two scenarios where FHA loans might make sense.

Borrowers with a sub-620 credit score

While most lenders call for a minimum credit score of 620 for conventional loans, FHA loans have looser requirements. Homebuyers with a score as low as 500 can still be eligible for an FHA loan. However, lower scores also mean higher down payments. Here’s what FHA requires:

• 580 credit score to qualify for a 3.5 percent down payment
• 500 to 579 credit score must have a minimum 10 percent down payment

Borrowers with a low down payment

In an environment with rising housing costs and a student debt crisis, many of today’s buyers find it challenging to save for a down payment. Many folks need a loan with low down payment requirements in order to access homeownership.If you have a minimum 580 credit score, FHA loans require only 3.5 percent down. This is good news for folks who would otherwise be required to make a larger upfront payment.

With Bankrate’s mortgage rate tables, you can receive tailored offers by plugging in your location and basic details about your finances.

To get a formal FHA mortgage quote, you should first decide your preferred loan term. 15-year and 30-year terms are the most common options, but there are other options available as well. A shorter term will likely come with a lower interest rate, therefore reducing your overall expenses throughout the life of the loan, but has the downside of a higher monthly payment.

For a lender to provide you with an accurate quote, you’ll need to communicate your preferred loan term, and you’ll also have to present documents attesting to your income, assets, credit score and payment history, and debt burden.

You can seek offers from a variety of lender institutions and compare offers online. Be sure to talk with your bank or any other financial institution that you have an existing relationship with, since they may offer competitive deals to existing customers.

• Basic home mortgage loan 203(b): A standard mortgage loan insured by HUD. Borrower must meet credit requirements and must purchase a one-to-four unit structure with a price below the area’s mortgage limit. Up to 96.5 percent financing available.
• Adjustable-rate mortgages (ARMs): Unlike fixed-rate mortgages that have the same interest rate for the life of the loan, adjustable-rate mortgages will start out with a lower interest rate for a certain amount of time, and will then adjust to a higher rate once that period expires. The rate will then change on a regular basis, typically once a year. You might consider an ARM if you plan to sell the home before the rate adjusts to the higher level, or if you expect that your income will increase to compensate for higher payments. Otherwise, the risk of a significantly higher payment down the road is not to be taken lightly.
• 203(k) rehabilitation mortgage: You can use this loan to finance up to $35,000 into your mortgage to repair, upgrade, or improve a single-family home.
• Home equity conversion mortgage for seniors: You can use this reverse-mortgage program to withdraw a portion of your home’s equity to receive as income.
• Streamline refinance: A refinance option that requires minimal borrower credit documentation and underwriting.

Rates for FHA loans are typically similar to those for conventional loans, although you might see lower interest rates advertised. For example, you might see a lower interest rate on an FHA loan compared to the interest rate on a conventional loan, but the FHA loan’s annual percentage rate, or APR, is higher. APR includes all of the fees associated with the loan.

See the table below for an example of the costs associated with an FHA loan versus a 30-year fixed loan. Keep in mind, interest rates are dependent on the market and the borrower's creditworthiness.

FHA loan has 1.75 percent upfront premium added to loan amount. Rates based on April 2021 rates. Conventional loan assumes 1% annually for PMI.

Each year, the FHA updates its lending limits, or the maximum amount that the agency will insure for a given area and type of property. These limits are influenced by Fannie Mae and Freddie Mac’s conventional loan limits. The national ceiling is $970,800, and the low-cost areas limit is $420,680.