Updated September 28, 2020
Current FHA Loan Trends
Updated January 20, 2022
- 30-Year FHA Loan Rate 3.190%; APR of 4.030%.
If you’re looking for a mortgage 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 may be easier to qualify for compared to conventional mortgages. Borrowers who opt for an FHA loan can often make a down payment as low as 3.5%, which is well below the 20% required by some lenders for conventional loans.
Many established lenders offer FHA loans, and it’s worthwhile to compare it to other mortgage offerings. 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
- Guild Mortgage – Best for financing
- 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.
Guild Mortgage – Best for financing up to 96.5% of your home’s appraised value
Guild Mortgage offers FHA loans with down payments as low as 3.5%. You can pre-qualify online in minutes and still have the option to speak with a customer service rep if you have questions. Even if you have a credit score as low as 600, you may still qualify for a Guild Mortgage FHA loan. Guild Mortgage specializes in low down payment government mortgages and mortgages for first-time home buyers, and this lender will consider a history of payments on rent and utilities to show creditworthiness. The Better Business Bureau gives Guild Mortgage an A+ rating and it received a 4 out of 5 rating in the J.D. Power 2019 U.S. Primary Mortgage Origination Satisfaction Study.
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||4.184%||4.457%||Not listed||3.50%|
|BBVA||Not listed||Not listed||640||3.50%|
|Guild Mortgage||Not listed||Not listed||600||3.50%|
|New American Funding||3.620%||2.610%||700||3.50%|
*Rates accurate as of September 27, 2020.
FHA Loans vs. Other Mortgage Types
We have created a comparison table to easily visualize the difference in monthly payments from all mortgage type’s 30-year term loans. Also compare national mortgage rates to see how each of these mortgage types’ interest rates are trending over time.
|Features||30-Year FHA Loan||30-Year Fixed Loan||30-Year VA Loan||Conventional 5 year ARM|
|VA Funding Fee||N/A||N/A||2.3%||N/A|
|Appx. Total Monthly Payment||$1,748||$1,530||$1,813||$2,032|
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 five 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 at least 580 to be eligible for the 3.5% down payment, lower credit scores between 500 and 579 are acceptable for FHA loan eligibility if you’re able to put at least 10% down of the total loan amount.
- 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 also meet FHA standards.
- Mortgage Insurance Premium (MIP) is required.
- You must have proof of employment and a steady income.
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 2020 is $331,760, while the ceiling limit for more expensive areas is $765,600.
The Impact of Prolonged PMI Insurance
You must pay for both annual and upfront mortgage insurance, no matter your down payment, to meet the terms for an FHA loan. 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 0.1% 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 the interest rate 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.
Current FHA mortgage rates
FHA mortgage rates have remained low for the last several months, which is no surprise considering that mortgage interest rates recently reached record-breaking loans for almost every loan type. The average rate for a 30-year fixed mortgage is 3.090% as of September 27, 2020 — well below what rates were for this type of mortgage even one week ago. While mortgage rates constantly fluctuate, experts expect FHA loan rates to remain low in the near future due to the economic hits the nation sustained from COVID-19.
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 may have other government-insured options with even lower down payments of 0%, including USDA loans (available in some areas) and VA loans (available to military and veterans).