FHA Mortgage Rates – Comparing FHA, USDA & Conventional Loans

Shopping for mortgage interest rates in today’s market can feel overwhelming. From FHA loan rates to VA loan rates, from discount points to APRs, there are a myriad of lenders, with each offering tens of interest rate options from which to choose.

The good news is that shopping for a home loan can be simplified. Using a few basic strategies, consumers can select and lock their best mortgage product at the best available mortgage interest rate with confidence.

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Selecting Which Loan Is Best For You

Mortgage lenders offer consumers a multitude of mortgage products. However, not all will be suitable to prospective home buyers and refinancing households. As a consumer, you can simplify your choices by eliminating programs for which you can’t be eligible.

For example, access to VA loans is limited to veterans of the military and active members of the armed forces. And, USDA loans are restricted to home buyers who live in rural and less-dense suburban tracts.

Likewise, home buyers making a 20% down payment may want to consider conventional mortgages above all other options.

Here are some of the most common mortgage loan types, and notes on eligibility.

FHA Mortgage Interest Rates

Loans insured by the Federal Housing Administration (FHA) are typically best for homebuyers with little money for a down payment or less-than-perfect credit.

FHA loans require just 3.5% down and a credit score of 580 or better. Some lenders will enforce minimum credit scores which are higher than 580 so if your lender turns you down because of low credit scores, apply again with a different bank. You may get a better outcome.

All FHA loans require mortgage insurance premiums (MIP) to be paid at closing, as well as monthly.

FHA MIP is typically more costly than the private mortgage insurance (PMI) associated with a conventional loan via Fannie Mae or Freddie Mac. This is why borrowers with at least 5% down and with good credit scores should compare the ongoing costs of a FHA loan versus a conventional one.

FHA loan rates are typically lower than conventional mortgage but because FHA MIP can be expensive, the costs of FHA loans may be higher — even after applying the MIP discounts available to first-time buyers via the FHA Homeowners Armed With Knowledge (HAWK) program.

FHA-backed mortgages are an excellent option for many of today’s home buyers who seek a fast track to homeownership. Many buyers qualify for homes sooner with the FHA than via other loan programs.

VA Mortgage Interest Rates

VA loans are loans guaranteed by the Department of Veterans Affairs and are available to buyers and existing homeowners with qualifying military service experience. Because VA loan rates are typically the lower than comparable FHA rates, military borrowers should compare VA mortgage interest rates before applying for any other loan type.

VA loans offer more than just low mortgage rates, though.

• VA loans offer 100% financing — there is zero downpayment required
• VA loans do not require monthly mortgage insurance, regardless of your downpayment
• VA loans allow for less-than-perfect credit and low credit score

Furthermore, VA loans are assumable which means that, when you sell your home, the buyer of your property can apply to assume your mortgage and its low interest rate. This can be a tremendous selling point if mortgage rates rise between today and the date your sell your home.

Conventional Mortgage Interest Rates

Conventional loans are loans backed by Fannie Mae and Freddie Mac, and account for more than 60% of all mortgage loans made annually. Most conventional loans are “conforming loans”, which means that they conform to mortgage guidelines of Fannie Mae and Freddie Mac.

For home buyers with credit scores of 680 or higher, conventional mortgages may be the best option — even if the downpayment is less than 20 percent. Conventional loans require 5% down, except for “special programs” including which allows for smaller downpayments and no PMI requirement.

For home buyers putting down less than 20%, conventional mortgages typically carry lower costs over time as compared to FHA loans. Ask your lender to provide a short- and long-term cost comparison sheet to help you choose between the two.

USDA Mortgage Interest Rates

USDA home loans are loans backed by the U.S Department of Agriculture. Sometimes called the Rural Development loan, USDA home loans allow home buyers to buy with zero-money down and ultra-low interest rates.

USDA loans are available in rural areas, and less-dense suburban neighborhoods. Homes in many U.S. suburbs are eligible for USDA lending.

Among the USDA home loan requirements:

• The mortgage applicant must not exceed local income limits
• The mortgage applicant may not own other adequate housing within a reasonable distance
• The mortgage applicant must have a reasonable
• The mortgage applicant must have a credit score of 620 or higher

Mortgage rates for USDA mortgages are often the lowest of all government-backed home loans. Therefore, home buyers in all suburban and rural neighborhoods should confirm their USDA-eligibility prior to locking a mortgage rate.

Selecting Your Best Mortgage Rate

When home buyers give a formal mortgage application to a lender, and review their available loan options, one or two “best” mortgage options usually emerge. With fewer loan types from which to choose, mortgage interest rate shopping can become simpler.

Mortgage rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.

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