What are the FHA Lending Rates?
What are the lending rates on an FHA loan?
If you’re considering your first home purchase, it’s a good bet that you’ve been told you’d be a great candidate for an FHA loan. Naturally, you’d want to check the FHA lending rates. It makes sense that FHA lending rates would be uniform across lenders, since it involves a government program. The truth is that banks set their own FHA lending rates, the government only insures the mortgages against loss in the case the homeowner defaults.
How is the FHA Lending Rate Established?
The major banks in the United States use the Federal Funds Rate as a rule of thumb for establishing their own Prime Rates. Most of the time, any individual bank’s Prime Rate is the FFR plus about 300 basis points, or three percent. So, if the FFR is 1.5 percent, the FHA lending rate might be 5.5 percent. Or it could be 3 percent. This all depends on how badly those banks want to do business with FHA borrowers.
Usually, though, most banks set their FHA lending rates approximately the same, give or take a small fraction of a percent. Many of the fees associated with this loan type are also established by the bank, so you may be able to get a better deal where it matters in the short term even if different banks have more or less the same rates.
What are the Advantages of an FHA Loan?
If FHA lending rates are set the same as any other lending rates, there have to be other benefits to borrowing using this program. The good news is that there are, and they’re more than enough to make up for not getting a universal interest rate. For example:
You can borrow with a weak credit score. That’s not to say that you can get all the money with a totally ruined credit rating, but if you’ve not had much credit experience or you’re cleaning up a mess you made in the past, FHA is a lot more forgiving than other loan programs out there. They technically allow loans with a score as low as 580, but many lenders use overlays that will push that minimum score up into the mid 600s.
You don’t need a huge downpayment. In fact, if you can get connected with some first time home buyer grants, you may be able to come to closing and spend almost nothing out of pocket. Ask your lender of choice if there are any grants available in your area, since they could save you a bundle over the long run.
You might get your closing costs paid, too. Although conventional loans can allow up to nine percent of your home’s sales price in closing costs paid by the seller, you have to bring a 25 percent down payment to get them. With FHA, you can ask the seller to pay up to six percent of the sales price even if you bring the minimum 3.5 percent or have a grant to apply as a loan down payment.
Although there is no one FHA loan rate to rule them all, there are several other great features of an FHA loan that are uniform across the spectrum. From low down payments, easy credit qualifications, and even liberal seller paid closing costs limits, FHA is designed for first-time homebuyers.