There comes the point in life when you want a place of your own. This may be for a variety of reasons; maybe you want to start a family or create the home of your dreams that reflects your values and way of life. Most Americans can only buy a home with a mortgage. At the same time, attaining the money for the 20% down payment can be very difficult for some buyers. This is where finding the best FHA mortgage rates comes in.
The Federal Housing Administration & FHA Mortgage Rates
Since the Great Depression, the Federal Housing Administration (FHA) has been helpful in the home-buying process. FHA financing is a popular choice for first-time buyers and people with a limited budget, and the FHA reverse mortgages are the preferred option among people aged 62 and older.
Why are FHA loans so popular among first-time buyers? One of the reasons is that they let people pay smaller down payments. They also help with the problematic underwriting process. The loans are issued by an FHA-approved lender and are insured by the FHA program itself. This government guarantee makes it easier for FHA mortgage lenders to be more lenient with underwriting requirements, including down payments and credit guidelines.
Things can get a bit complicated when it comes to choosing the right loan, so in this case, mortgage and rate comparisons can help a great deal. That’s why we created this short guide to help explain the FHA benefits and drawbacks. We’ll also compare some of the best loans on the market.
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We selected some of the most competitive FHA mortgage rates, and lenders compared them to make your life easier. But before diving in, let’s explain a little bit more what an FHA loan is.
What are FHA Loans?
An FHA loan is a mortgage guaranteed and insured by the Federal Housing Administration. These types of loans require a smaller down payment and lower closing costs, which allows relaxed lending standards to help homeowners who do not qualify for a conventional mortgage.
An FHA loan is a popular option for many Americans, especially people on a tight budget, first-time homebuyers, and those with a poor credit history. An FHA loan could be a good option for you if your credit score is below average, you haven’t had enough time to build a good history of timely payments, or you’ve had past financial difficulties. The FHA backs these loans, which protects the lender if you default on your mortgage. With this guarantee, lenders can offer loans to people with a greater range of credit scores.
FHA Loan Coasts
Although they are very affordable, FHA loans still have up-front and ongoing additional costs. For example, you will have to pay mortgage insurance. This insurance protects the lender if you default or in case of an increase in your monthly mortgage payments.
An FHA loan works like any other mortgage. The home secures it, the lender pays for it, and you repay the lender with interest over time. If you default on your loan, the lender can sell the property and recover the balance due. The difference between an FHA loan and a traditional one is the government guarantee. This guarantee allows lenders to work with borrowers who might not qualify for a conventional mortgage. With traditional loans, lenders typically expect a down payment of 20%, but with the FHA, the minimum is only 3.5%. Other factors that make the FHA loans attractive are the lower credit score requirements, and that may allow a higher debt-to-income ratio or DTI.
The Best FHA Loans for 2019
There is no FHA lender or mortgage that is perfect for every borrower. However, there are lenders with great performance when it comes to eligibility requirements, customer satisfaction, and product offerings. They are approved by the FHA and lend directly to the customer nationwide. We have made a list of the recommended lenders to help your research.
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Best Customer Satisfaction
For its 20-year history, Fairway Independent Mortgage has funded more than $50 billion in loans. This lender has a five-star customer satisfaction rating as well as a five out of five J.D Power satisfaction ratings. It also offers the most mortgage products on the market.
Fairway Independent offers various mortgage types: USDA refinance, Jumbo, Conventional, Jumbo, ARM.
The minimum credit score is 580 for FHA and varies for other loans. The maximum debt-to-income ratio is 43%.
Best for FHA Streamline Refinance
Quicken Loans offers several options nationwide. It is known for its excellent customer service (A+ Better Business Bureau rating and among the best in the 2018 U.S Primary Mortgage Origination Satisfaction Study).
The Minimum FICO credit score for FHA loans with Quicken is 580, though it may vary for other loans. The Maximum debt-to-income ratio differs as well. Quicken Loans scores five out of five on the J.D Power satisfaction rating.
Bank of America
No Minimum Loan Amount
Bank of America is a major financial institution with excellent customer satisfaction ratings. It serves homeowners nationwide. The bank has an A+ Better Business Bureau rating and a four out of five J.D Power rating, which is better than most lenders. Bank of America offers various mortgage types like VA FHA, refinance, home equity, and conventional. The Minimum FICO score is 620, the maximum loan-to-value ratio is 100%, and the debt-to-income-ratio 55%. The loan amounts are up to $5,000,000, and the total closing costs vary.
Loans up to $3M
Guild Mortgage is the best lender for loans up to $3 million. It lends nationwide with multiple mortgage options including USDA, cash-out refinances, Conventional ARM, VA, FHA, and Jumbo. Borrowers can choose from conventional or agency loans from a lender with A+ BBB rating and four out of five in J.D Power Satisfaction. The minimum FICO credit score is 620, and the maximum debt-to-income ratio is 45%.
Since 2010, LoanDepot has financed more than $70 billion in mortgages and is known as the best lender for fair credit. It offers conventional, FHA, and other mortgage options. Mortgage shoppers may qualify for a loan with a FICO credit score as low as 580. The maximum combined loan-to-value ratio is 90%.
On-Time Closing Guarantee
Chase Bank is a major financial institution with a variety of mortgage options, including FHA and adjustable-rate mortgages. It is the best lender for a $1,000 On-Time Closing Guarantee. Borrowers may qualify with a FICO credit score of 620. The maximum debt-to-income ratio is 50%.
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FHA Loans: Pros and Cons
Pros of FHA Loans
One of the most significant benefits of FHA loans is that they have low down payment requirements. Buyers can put as low as 3.5% of the price down. However, the interest rate can be somewhat higher compared to many of today’s mortgage rates.
People who may qualify for an FHA mortgage loan have not owned a home in at least three years or more, or are first-time buyers.
FHA also offers to finance for mobile and pre-built homes. Additionally, there are loans to accommodate people who own land they want to build on, and those who plan to live in a mobile home park.
FHA mortgages are the best option for buyers who want to take advantage of a low rate but don’t have a sizeable down payment.
Another attractive feature of FHA loans is the fact that the required credit scores are lower. This allows homebuyers without a long credit history or a good credit score to take out a mortgage.
These loans are a popular choice for refinancing. Many borrowers with adjusting ARMs look to FHA refinance into fixed-rate loans.
Cons of FHA Loans
The most significant drawbacks of the FHA loans are the insurance premiums. There are two types of premiums that borrowers are required to pay: annual premiums and mortgage insurance premiums (MIP).
These costs may vary. The annual premium rate is usually 0.85% of the loan, and the MIP is roughly 1.75% of the loan amount. That’s $850 each year on a $100,000 loan for the annual premium and $1,750 for the MIP.
Both of these can be part of the loan itself, which means bigger monthly payments and more principal owed.
FHA Requirements & Qualifications
Here you may be wondering – how do I get approved for an FHA loan?
Requirements for Approval
To get approved for an FHA loan, the homebuyer must satisfy the following requirements:
- To have a steady employment history
- To be able to pay the loan, plus the charges and fees that come with it
- To demonstrate financial soundness
- To have residency
Other Qualifications to Consider
Here are some more requirements and qualifications to consider.
- FHA loan limits – these are the maximum amounts you can get as a mortgage. They vary by state and county.
- FHA loans require a minimum down payment of 3.5 percent.
- FHA loans also have property requirements. The home being purchased needs to meet certain conditions and has to be approved by the lender. As of recently, the FHA loans are available only for homes that will serve as the buyer’s primary residence.
Additionally, the property has to meet the following requirements:
- Have been appraised by an FHA-approved lender
- Will be used as a primary home
- Does not have any conditions or deficiencies in its structural integrity
An FHA mortgage may be right for you if you are a first-time buyer and your credit score doesn’t meet the requirements for a conventional loan, or if you have a limited budget for a down payment. If you want to learn more, contact a mortgage loan officer to help you with deciding which option is right for you.
FHA Mortgage Rates and Picking the Right Mortgage
One of the most critical topics when choosing a mortgage is the rates you will have to pay. Above we have listed some lenders with the lowest available FHA interest rates for these popular loan options. However, these are not necessarily the FHA loan rates you will get when you apply. The rate you will get depends on many factors, including your loan amount, credit score, and down payment.
The most accurate way to see what your rate could be is to consult a mortgage officer who will match you with a loan option and rate that meets your financial goal. This step is very important. Here are some goals you may have and the loans that could help you reach them.
Low FHA Mortgage Rates
Adjustable-rate loans or ARMs are the ones with the lowest interest rates. They are great if you expect to sell your property, purchase, or refinance the loan before the initial fixed-rate period ends. The 5-year ARM is quite popular. It is a 30-year mortgage with an initial fixed-rate period of 5 years.
Today’s FHA mortgage rates largely mirror the rates of conventional mortgages over time. If we look at the past year, we can see that the spread is 1-4 points over comparable conventional mortgage loans. Despite the proximity of these rates, FHA borrowers will pay a higher annual percentage rate than conventional borrowers in the long run. This is because of the presence of PMI, which can cost between 0.5% to 5% of the initial loan amount annually.
Consistent Monthly Payment
If consistent monthly payments help you plan better and make you feel more secure, a fixed-rate mortgage is the best option for you. A fixed-rate means it stays the same for the life of the loan, so your payment won’t change. Your payment will only vary if your homeowner’s insurance premiums or taxes due. Many home buyers opt for 30 or 15-year fixed-rate loans.
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A Convenient Term
Depending on your situation, you may want to pay off your house before a significant life change further down the line. There are loans with terms from 8 to 30 years, which means you can pay off your mortgage in the time frame that makes sense for you.
FHA home loans are an excellent option for first-time homeowners and people on a budget. That’s precisely why they are so popular. However, they have their own specific requirements and terms, so to choose the mortgage that best fits your life situation and goals, you need to do your research carefully.
We hope our comparison list of current mortgage lenders will help you find the best mortgage and take you one step closer to buying your new home.