Current FHA Loan Trends
Updated July 10, 2020
- 30-Year FHA Loan Rate 2.970%; APR of 3.540%.
If you’re looking for a mortgage loan with flexible lending requirements, low interest rates and other perks, you may find it worthwhile to weigh FHA loans as part of your mortgage hunt. This type of mortgage loan offers the opportunity of homeownership to buyers who have credit dings, low down payments and other hurdles that may impede securing a conventional loan, and FHA loans are federally backed, too.
Since 1934, the Federal Housing Authority (FHA) has insured mortgage loans through FHA-approved lenders for qualifying Americans all over the United States, with more than 45 million FHA mortgage loans issued in the past eight decades. Part of the reason that FHA loans are so popular is that they are quite easy to qualify for when compared to conventional mortgages, and borrowers who use this program can often make a down payment as low as 3.5%, which is well below the 20% required by some lenders for conventional loans.
A large portion of conventional lenders also offer FHA loans, and it could be well worth your time to consider FHA loans along with the other loan options available to you. An FHA-insured mortgage delivers many benefits — but may have some downsides, too. Let’s take a look.
5 best FHA loans of 2020
- Quicken Loans – Best for customer satisfaction
- U.S. Bank – Best for online tools
- BBVA – Best for low down payment options
- Caliber Home Loans – Best for learning resources
- New American Funding – Best for low credit
Quicken Loans – Best for customer satisfaction
For 10 years running, Quicken Loans has earned the distinction of the top Primary Mortgage Origination company in customer satisfaction from J.D. Power. Homebuyers can apply for an FHA loan through the company completely online or over the phone with an expert loan officer. Quicken also offers no down payment loan options (VA and USDA loans) in case you’re not completely sure if an FHA loan is the right fit for you.
U.S. Bank – Best for online tools
With branches and loan officers in over 40 states, U.S. Bank offers customers the ability to apply for an FHA loan online or in-person at a branch location. Whether you want the hands-on, personal touch, or the streamlined online process, U.S. Bank can deliver. The bank offers online prequalification, mortgage calculators, and affordability calculators to help prospective home buyers make the right choice for their first or next home purchase.
BBVA – Best for low down payment options
BBVA was founded well over a century ago in 1899 in Spain and has been helping customers with personal finance ever since. The bank offers five separate low and no down payment home buying options for you to choose from, including an FHA mortgage. The minimum credit score the bank is willing to work with on an FHA loan is a bit higher than the rest of the industry at 640, which could be a deterrent for some.
Caliber Home Loans – Best for learning resources
An FHA loan is available from Caliber Home Loans with a credit score as low as 580. The Texas-based lender is willing to accept more risk, which may be ideal for borrowers worried about getting approval. If this is your first time buying a home, Caliber Home Loans offers a fully dedicated tools and resources section on its website that has articles on market commentary, mortgage calculators, FAQs, and tips for home buyers.
New American Funding – Best for low credit
New American Funding was founded in 2003 by Rick and Patty Arvielo and serves as a direct lender, seller, and servicer of Fannie Mae, Freddie Mac, and Ginnie Mae. For the traditional 3.5% down, New American Funding will work with buyers that have a credit score of 580 or above. If you fall below the line, though, you’re not out of luck. New American Funding offers the full FHA loan limits to borrowers with credit scores as low as 500 but does require a higher 10% down payment.
Compare the 5 best FHA loan options
|Lender||30-Year APR||15-Year APR||Minimum Credit Score||Minimum Down Payment|
|U.S. Bank||3.319%||Not listed||Not listed||3.50%|
|BBVA||Not listed||Not listed||640||3.50%|
|Caliber Home Loans||Not listed||Not listed||580||3.50%|
|New American Funding||Not listed||Not listed||500||3.50%|
*Rates accurate as of July, 2020.
Compare Home Loan Options
|Features||30-Year FHA Loan||30-Year Fixed Loan||30-Year VA Loan||30-Year USDA Loan|
|Down Payment %||3.5%||20%||0%||0%|
|Down Payment $||$5,250||$30,000||$0||$0|
|Total Monthly Payment||$829||$685||$642||$683|
What is an FHA Loan?
FHA mortgage loan insurance protects lenders in cases where the homeowner defaults on the loan. Lenders face less risk this way– the housing authority pays the remaining mortgage balance if it goes unpaid.
Since the FHA guarantees the mortgage, the loan requirements are not quite as stringent as they may be with other loan options. FHA-insured mortgage loans are more credit-friendly and require a lower down payment. However, if you choose to pursue an FHA loan, you may face a few trade-offs as well.
For example, if the home you wish to purchase costs more than the FHA-approved amount or you’re interested in a fixer-upper that can’t pass a home inspection before purchase, you may need to consider another option, such as a conventional loan.
Qualifying for an FHA Loan
There are three major FHA loan requirements you must meet to qualify for an FHA loan:
- Credit Score: Though FHA loan borrowers need only a FICO credit score of 580 to be eligible for the 3.5% down payment, lower credit scores are acceptable for FHA loan eligibility if you’re able to put at least 10% of the total amount down.
- Debt-to-Income Ratio: Another FHA loan requirement involves how much debt you have compared to your income. In order to qualify for an FHA loan, your debt-to-income ratio should not exceed 43%.
- Property Type: The property being financed must also be a primary residence as opposed to an investment property, and the home must pass HUD-approved inspections. The property must meet FHA standards. You won’t be able to buy a unit that’s currently out of commission if you’re looking to finance with an FHA loan.
Furthermore, there are limits placed on the amount of financing you can receive through FHA, and these limitations depend on the cost of living in a specific area. The standard floor limit on FHA loans for 2019 is $314,827, while the ceiling limit for more expensive areas is $726,525.
The Impact of Prolonged PMI Insurance
Since mortgage insurance is built into your FHA loan, you won’t have to worry about carrying PMI, or Private Mortgage Insurance. If you pursue a conventional loan and are unable to make a down payment of at least 20%, PMI will be required to protect the lender in case of homeowner default. It’s essential to remember that this type of insurance does not protect you in the event that you fall behind on mortgage payments and you could still face foreclosure.
The Impact of 0.1% change on $100,000
A .1% change in your interest rate may not seem like much, but when applied to a large loan amount, it could accumulate quickly. For example, if you have a 30-year mortgage of $100,000 with an interest rate of 3.92, and one-tenth of a percent increase or decrease can add up over time. With an interest rate of 3.92, your monthly payment could be $473, but if that goes up to 4.02, your monthly bill would increase to $479 per month. Over the lifetime of your mortgage, this small change could add up to an increase of $2,160. This demonstrates the importance of monitoring interest rate fluctuations and searching for the best rate possible before settling with one lender.
The final word
Buying a home can be an interesting and new process for many people. If your goal is to purchase a home with a minimal down payment and low-interest rates, FHA loan interest rates could be the right fit. If you don’t meet the FHA loan requirements, you do have other lending options offering even lower down payments of 0%, including USDA loans (available in some areas) and VA loans (available to military and veterans).