How to Shop for FHA Mortgage Rates
If you have average or below-average credit and want to buy a home, you don’t have as many mortgage options. However, an FHA loan can help you get into the home of your dreams.
An FHA loan has easier lending criteria and a down payment as low as 3.5%. Rates are generally competitive with conventional mortgages, but it pays to shop for FHA mortgage rates to get the best deal. Learn more about FHA loans below.
FHA Loan Basics
FHA loans are a good choice if you have a low credit score and little or no equity. Borrowers can qualify with a 580 credit score and have a 3.5% down payment. Or, you can have as low as a 500 credit score and put down 10%. Note that you will need to pay for mortgage insurance if you put down less than 20%. This will add at least $50 or $100 to your payment.
When you shop for an FHA loan, remember that the FHA requirements are the bare minimums. Some lenders will have tougher criteria and higher interest rates than others. So, it pays to shop around. Also, not all lenders offer FHA loans, so you should check with several lenders for the best deal.
Getting The Best FHA Loan Deal
Whatever kind of loan you get, there are a few things you can do to lower your score:
Of course, the higher your credit score, the better your rate will be. With rates almost double what they were a year ago, going into a home with a higher credit score will save you money.
That said, credit score is not as important with FHA loan rates as conventional loans. The rates for FHA loans tend to be more uniform, but the specific lender will let you know if a higher score can help you. Getting approved for an FHA loan with a higher score will be easier. You can still be approved with a low score, but more hassle and paperwork is involved.
Type of Loan
With much higher rates today, adjustable-rate loans are more popular again. While the interest rate will adjust to market rates after a few years, this can be a way to save money in the short term on an FHA loan.
An ARM can be a good choice if you think you will sell the home before the mortgage resets. But if you plan to stay in the home, it may be best to opt for a higher-rate, fixed mortgage.
The size of your down payment does not affect the rate for an FHA loan as much as other loans. However, a down payment of 10% or 20% means you will have a lower monthly payment. Also, you will have an easier approval process for an FHA loan if you have more skin in the game.
Another strategy to get a lower rate on an FHA loan is to choose a 15-year mortgage. Yes, you will have a higher payment but the rate will be lower. Making this choice means paying thousands less in interest over the life of the loan.
There is no doubt that mortgage rates are much higher than most Americans are used to. In a year, rates went from about 3% to 7% or more! However, an FHA loan is still a good choice for saving money and putting down less money if you have a low credit score.