FHA loan rates have risen, along with mortgage rates generally. But these are still great loans for homebuyers.
What are current FHA loan rates?
You’ve probably heard that mortgage rates are going up this year. You’re wondering just how high they are — and whether you should buy a home before they go even higher.
But tracking FHA loan rates today, or any mortgage rates for that matter, may be less informative than you think.
The rates you see can give you insights into the market, and rates are up significantly from where they were at the height of the Covid-19 pandemic in 2020. But if you’re wondering whether to buy, the first place you should look isn’t daily rates. It’s at your own creditworthiness.
Because that can have a big effect on your interest rate.
What's in this Article?
Why do FHA loan rates change?
FHA mortgage rates historical chart
Will FHA loan interest rates go up in 2021?
What can I do to get a lower interest rate?
FHA loan interest rates FAQs
Check today's FHA rates
Why do FHA mortgage rates change?
FHA home loan rates, like all mortgage rates, change often. They may stay in a similar range for a while, but they can shift incrementally day to day.
Why does that happen? It’s kind of complicated, but it has to do with the health of the economy.
Mortgage rate movements explained
After mortgages close, lenders sell them to investors in a secondary market as mortgage-backed securities (MBS).
MBS are basically groups of mortgages packaged up together. Company 401k managers, individuals, and others buy them to receive the interest due.
Investors see MBS as safe investments, so during rough economic periods (ahem, Covid-19), the demand for them is high. And high demand usually means rates are low. Investors are willing to earn very low interest on a safe investment.
As the economy improves, the demand for mortgage-backed securities falls, and mortgage rates rise. An investor that can make 10% in the stock market likely won’t buy MBS paying a 3% return.
Mortgage rates in constant flux
If you looked at the FHA loan interest rate in, say, November 2020, the average rate for a 30-year, fixed-rate mortgage was in the 2s. If you looked up FHA loan rates today, the average rate for the same type of loan could be significantly higher.
That’s because in November 2020, the country was bracing for a holiday surge of Covid-19 cases, and vaccines weren’t widely available. As vaccine access improved and people returned to work and (somewhat) normal routines, the economy improved as well.
Tracking mortgage rates can be an interesting pastime, especially if you enjoy knowing what’s going on in the market. But interest rates are more personal than you might think.
Mortgage lenders set individual rates based on each borrower’s finances. So while watching what’s happening in the market may be fun, it won’t give you much insight into how much you’ll pay for a mortgage loan.
The biggest influencer of your mortgage rate: you.
Will FHA loan interest rates go up in 2022?
So far, interest rates have gone up this year. But that was to be expected. Rates plummeted to historic lows during 2020 because of the economic turmoil caused by the coronavirus pandemic.
Once the economy began to improve, rates began climbing as well.
That doesn’t mean you can’t get a good rate, though. As you’ll see in the next section, you can influence your personal rate in important ways.
What can I do to get a lower interest rate?
The average interest rate you see in the news can be a good reference point for where the market is. But the rate you get from lenders depends on your unique circumstances, including:
- Credit score
- Credit history
- Debt-to-income ratio (DTI)
- Down payment amount
When lenders review your mortgage application, they look at how much risk they’re taking on by lending you money. A person with excellent credit, a history of paying their bills on time, and low debts looks less risky than someone with low credit, a history of foreclosure, and $1,000 in monthly credit card bills.
Your down payment can also come into play, because the more you put down, the lower your loan amount. And the smaller your loan, the less risk for your lender.
Here’s how to improve your chances of getting a low rate:
- Maintain good credit. Pay your bills on time, and keep balances on credit cards as low as possible.
- Pay down debts. Lenders need to ensure that you can make your monthly payment in addition to your other obligations. Having little to no debt can improve your interest rate.
- Look for homes with a lower purchase price. Buying a less expensive home means you’ll need to borrow less money, you’ll be taking on less debt, and you may be able to make a bigger down payment. All of those factors can help you get a better interest rate — and make the loan more affordable overall.
It’s a good idea to request mortgage quotes from at least three lenders. Each will send you a loan estimate detailing all of the costs associated with the mortgage, including interest rate, annual percentage rate (APR), and the origination fee.
When you get the estimates, look at the total cost of each loan. One lender may offer a lower interest rate, but you may end up paying more with them because of other fees.
A lender can also tell you all of the loan options available to you. If you’re eligible for a VA loan or USDA loan, you may want to use those instead of an FHA loan. Like FHA, VA and USDA loans are backed by the government, but they often have lower interest rates.
The down payment requirements are also more attractive. Although FHA has a low down payment minimum of 3.5%, you can get a VA or USDA loan for 0% down.
Still, each of these loans can be a solid route to homeownership, and a loan officer can guide you through your choices.
FHA mortgage interest rates FAQs
Do FHA loans have lower interest rates? FHA mortgage rates tend to be lower than conventional loans because they are backed by the Federal Housing Administration. The government insurance reduces the risks for lenders and encourages them to offer mortgages to people who may not meet credit and DTI eligibility requirements on conventional loans.
What is a good FHA interest rate? It’s tough to say what a “good” FHA interest rate is because rates vary based on the market, lender, and your financial situation. You can give yourself the best shot at a competitive interest rate by maintaining good credit, keeping your debts low, and saving as much as you can for a down payment. The lower risk you appear to a lender, the better the rate they’re likely to give.
What is the FHA 30-year fixed rate? Interest rates fluctuate all the time, and the rate you’ll receive may be very different from what another borrower is offered.
If you want to find out what your rate will be on a 30-year fixed-rate FHA mortgage, your best bet is to get preapproved through an FHA lender. They’ll give you a loan estimate, including interest rate, after you give them some initial information on your income, credit, and debts.
What’s the catch with an FHA loan? FHA loan requirements are more flexible than conventional loans, making it a great mortgage program, especially for first-time homebuyers. The only “catch,” if it can be called that, is the mortgage insurance premium (MIP).
All FHA loans require an upfront and annual MIP. If you put down less than 10%, which most FHA borrowers do, you’ll owe MIP for the life of the loan. That’s different from conventional loans, which require private mortgage insurance (PMI) only until you’ve reached 20% home equity.
To avoid the lifetime MIP, you can put down more than 10% on an FHA loan, and the MIP will fall off after 11 years. Or you can refinance to a conventional mortgage once you’ve reached 20% equity.
What is a good FICO score to buy a house? FICO score requirements depend on the type of mortgage you choose. But with any loan program, higher is better. A high credit score shows that you’ve managed debt responsibly in the past, giving lenders confidence that you’ll pay your mortgage on time as well.
To qualify for an FHA loan with 3.5% down, you’ll need a FICO score of 580 or higher. You may be eligible for an FHA loan with a 500 credit score, but you’ll have to put 10% down.
Will my credit score affect my interest rate on an FHA loan? Yes. Lenders use your credit score and credit history to determine your interest rate. However, FHA loans are much less rate-sensitive than conventional loans, so FHA might be your best choice if you have lower credit.
Will mortgage rates drop below 3% again? We probably won’t see the historically low interest rates from 2020 again anytime soon. But while there’s nothing you can do about rates in the market, you can give yourself a leg up by tightening your budget and boosting your credit score before you apply for a mortgage. Remember that good credit, low debts, and solid savings can help you score a great rate.
Will mortgage rates go down in 2022? Mortgage rates fluctuate all the time, but they have been trending upward in 2022.
I want to check today's FHA mortgage rates
Before you start looking at homes (even though the Zillow app is hard to resist), consider getting prequalified for an FHA loan with an FHA-approved lender. A prequalification shows you how much you may be able to borrow, so you can look for homes in your price range.
Once you find a home, you can lock in an FHA loan rate. Until then, you can watch rates and perhaps get an estimate of what your rate would be today if you found a home.
Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA, and were not approved by a government agency.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.