FHA Loan Rates
2016 welcomed prospective homebuyers with great news: mortgage rates have dropped. The trend has been like that for quite some time in 2015, with one finance website noting in February 2016 that mortgage rates have not reached this low since May 2013.
Notwithstanding the specific pricing of mortgage rates on a day-to-day basis, the overall dip in mortgage rates is a great development for borrowers who want to own a home at affordable rates.
The thing about FHA loans is that they require smaller down payments, come in competitive interest rates, and primarily exist to encourage more people to own homes in the U.S.
FHA loans have been deemed ideal for first-time homebuyers and anyone else who wants to acquire a home. Mortgages are used to fund the purchase of a new home and they can be backed by a government agency such as the Federal Housing Administration or FHA.
FHA and What it Does
The FHA was formed in the wake of the Great Depression when thousands of people were unemployed and thus homeless because they could not afford to make timely payments for their homes.
In order to avoid that scenario again and boost homeownership rate in the U.S., the FHA, a government agency within the U.S. Housing and Urban Development (HUD), came into the picture. It is mandated to insure loans and pay claims to the lenders in the event of borrowers’ default.
Now, the FHA does not directly provide the loans but the lenders do. Given the insurance provided by the FHA, lenders are more confident to extend financing to individuals who normally can’t afford to make a down payment of 20% and have not-so-good credit.
FHA Loans Rates and Interest Rates
FHA Loans represent an umbrella of various types of loans to suit a broad number of borrowers’ needs. They normally fall under loans with these types of interest rates:
- Fixed Rate Mortgages – A fixed rate mortgage will have an interest rate that will remain during the entire life of the loan. This is ideal for people who have little to no cash set aside to make a home purchase. They can be newlyweds, college graduates or even those who are still completing their college education.
- Adjustable Rate Mortgages (ARM) – An ARM has an interest rate that adjusts at regular intervals during the term of the loan and may be tied to an economic index such the rate of Treasury securities. Certain ARMs permit the borrower to pay “interest only” or less than the “interest only”. In any of the above options, the mortgage payment is not applied towards the principal or the loan balance. Moreover, the less than interest only option works in that the unpaid interest will be added to the loan balance and the borrower will owe more than what he/she initially borrowed.
The following table contains the average interest rates for 30-year fixed rate single-home mortgages insured by the FHA as of May 2013. This is just an abridged version of a table prepared by the HUD that can be accessed here.
Fiscal Year: 1992
- Average Interest Rate: 7.85
- Number of Cases: 513,970
Fiscal Year: 1993
- Average Interest Rate: 7.45
- Number of Cases: 698,012
Fiscal Year: 1994
- Average Interest Rate: 6.93
- Number of Cases: 930,001
Fiscal Year: 1995
- Average Interest Rate: 7.42
- Number of Cases: 393,475
Fiscal Year: 1996
- Average Interest Rate: 7.19
- Number of Cases: 560,247
Fiscal Year: 1997
- Average Interest Rate: 7.07
- Number of Cases: 515,444
Fiscal Year: 1998
- Average Interest Rate: 6.71
- Number of Cases: 801,619
Fiscal Year: 1999
- Average Interest Rate: 6.52
- Number of Cases: 1,141,979
Fiscal Year: 2000
- Average Interest Rate: 7.08
- Number of Cases: 775,202
Fiscal Year: 2001
- Average Interest Rate: 7.08
- Number of Cases: 979,977
Fiscal Year: 2002
- Average Interest Rate: 6.68
- Number of Cases: 1,104,062
Fiscal Year: 2003
- Average Interest Rate: 6.01
- Number of Cases: 1,128,108
Fiscal Year: 2004
- Average Interest Rate: 5.69
- Number of Cases: 783,472
Fiscal Year: 2005
- Average Interest Rate: 5.63
- Number of Cases: 430,425
Fiscal Year: 2006
- Average Interest Rate: 5.77
- Number of Cases: 396,848
Fiscal Year: 2007
- Average Interest Rate: 5.95
- Number of Cases: 405,394
Fiscal Year: 2008
- Average Interest Rate: 6.01
- Number of Cases: 1,034,316
Fiscal Year: 2009
- Average Interest Rate: 5.63
- Number of Cases: 1,731,343
Fiscal Year: 2010
- Average Interest Rate: 5.23
- Number of Cases: 1,510,542
Fiscal Year: 2011
- Average Interest Rate: 4.66
- Number of Cases: 1,039,951
Fiscal Year: 2012
- Average Interest Rate: 3.97
- Number of Cases: 1,045,129
Fiscal Year: 2013
- Average Interest Rate: 3.53
- Number of Cases: 881,369
FHA Loans Refinancing Rates
With respect to ARMs, when the balance of the loan reaches the maximum, the loan is recast and the loan payments may double or triple. This scenario may be difficult for the borrower as he/she will have to make higher loan payments.
Against this backdrop, a viable option would be the FHA’s Streamline Refinance program. It affords borrowers with existing FHA mortgages to lower their monthly payments and thus increase their chances of repaying those mortgages. You see, lower mortgage rates would mean lower monthly payments that, in essence, would lead to fewer loan defaults.
Homeowners who want to qualify for the FHA Streamline Refinance must meet these criteria:
- Homeowners must live in the house subject to refinancing;
- An FHA Streamline Refinance has not been completed in the past six months;
- Homeowners must possess a perfect payment history for the last three months;
- Homeowners should make six payments on the existing mortgage and that 210 days must have passed from the closing date for the loan to be eligible for streamline refinancing;
- No minimum credit score is required for streamline refinancing but as some lenders might require it, a score of 620 or above may be maintained;
- A legitimate purpose to refinancing the existing FHA loan or a “net tangible benefit” must exist. This Net Tangible Benefit is defined as:
- Reducing the principal and interest component of the mortgage payment and the annual MIP by 5%; and
- Refinancing from an ARM to a fixed-rate loan.
A hallmark feature of an FHA Streamline Finance is the waiver of the home appraisal. It also waives customary verification for employment, income, credit score, and others that banks normally ask for traditional loans.
The FHA’s Streamline Refinance also permits the homeowner to use the original purchase price of the home regardless of its actual and current value.
The other benefits of FHA Streamline Refinance are:
- The FHA does not mind underwater mortgages or homes with little equity.
- The FHA will refinance the home without added penalty or cost.
- The appraisal waiver has encouraged LTV or unlimited loan-to-value home loans.
- 15- or 30-year term mortgages with either fixed rate or adjustable rate are available.
Most importantly, the FHA mortgage rates under the FHA Streamline Refinance are basically the same with regular FHA loans. In fact, you can take advantage of lesser rates for upfront and annual MIPs under the FHA Streamline Refinance.
In sum, the FHA Streamline Refinance is easy to qualify whether you (a) don’t have an income or out of work; (b) have little or no equity in your home; and (c) carry a not-so-good credit standing.
Shopping for the Best FHA Loan Rates
The current mortgage market has been encouraging to prospective buyers who want to take advantage of affordable financing to fund the purchase of their homes, as well as existing homeowners who want to lower their monthly payments under their FHA-insured loans.
While the FHA has effectively lowered mortgage rates by insuring mortgage loans, lenders impose different interest rates, origination costs and standards for the agency-backed loans.
It is thus recommended that you shop around to look for the best deal that would suit your needs and wishes. And the best part is lenders are just a click away and mortgage rate quotes available.
Having an informed decision is of utmost importance. Talk to a lender now and see which FHA loan is best suited for you.