May 21, 2024
FHA mortgages feature lower interest rates than conventional mortgages thanks to being backed by the U.S. government. And while mortgage rates in 2024 are higher than in years past, FHA borrowers may still qualify for a rate that’s lower than some conventional equivalents.
Those who qualify for the lowest down payment save money over the lifetime of their mortgages thanks to the lower rates, but how do you qualify for the lowest rate possible for your specific purchase?
Here are some important tips about mortgage loan interest rates you should know in the planning stages of your new home loan.
Credit Scores And Interest Rates Are Connected
That statement does not pertain to the overall interest rate offered to all borrowers. Your lender will offer you a mortgage loan rate based on that current going rate, but affected by your credit scores and other financial information.
The best advice for borrowers who are worried that their credit scores won’t earn them a lower rate?
Work on your credit as early as you can, work hard to raise your FICO scores through 100% on-time payments (one of the leading causes of credit score reductions is missed payments) and lowering your debt ratio.
Are Interest Rates Affected By My FICO Score Alone?
No. FICO scores are only part of your credit picture. Your repayment history on your monthly obligations will also count in the lender’s analysis of your creditworthiness. It’s a group effort, so to speak, between your scores and the details of how and when you pay.
Participating Lenders Set The Rates
The participating FHA lender offers you a mortgage loan interest rate based on factors including what’s going on in the market at the time, plus your credit report. The FHA itself does not set or regulate mortgage loan interest rates.
The Interest Rate Itself
Your lender may offer you a rate you think is good, or just OK. If you feel the rate is in the “just ok” department you can shop around for a different lender, or you can consider buying discount points to lower the rate according to the terms offered by the lender.
You can also choose not to buy discount points in favor of refinancing the loan later on with an FHA Streamline Refinance. This option (for FHA loans only as we learn below) is good for those trying to save more up front in out-of-pocket costs but who still want a lower rate option to exercise at some point.
Some borrowers may choose to buy a home with an adjustable rate mortgage (ARM loan) that offers a lower introductory rate. This can be a great strategy if you plan to sell the home once the rate adjustments begin or begin past a certain point.
Refinancing Into A Lower Rate
If you aren’t approved for an FHA mortgage at the interest rate you think you should have, consider refinancing the loan using an FHA Streamline Refinance.
This type of loan does not feature cash back to the borrower, but it does make the mortgage more affordable or predictable depending on the reasons why you refinanced.
These loans feature no FHA-required credit check or appraisal and usually must result in a financial benefit to the borrower such as a lower mortgage rate, lower payment, etc. Streamline loans can help you get out of an adjustable-rate mortgage and into a fixed-rate loan. Streamline refinance loans are for existing FHA mortgages only. They are FHA-to-FHA refi loans only.
Do you want to compare rates on an FHA home loan? You can try this today!
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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