September 27, 2018
Why do house hunters find FHA home loan interest rates advertised online to be different than the interest rates offered to them by a lender? Many borrowers want to know what the difference in rates will be and why.
The answer is that several variables combine when your lender is reviewing your application for a new mortgage. Your interest rate will be offered based in part on those variables.
What are some of these variables?
FHA Home Loan Interest Rates And Daily Market Conditions
FHA home loan interest rates are affected daily by investor behavior, breaking financial news, politics, even natural disasters and holidays. The daily changes in mortgage rates may or may not be passed on to the consumer in the form of an actual higher or lower rate; your loan could have adjusted closing costs instead of a new rate.
Or the changes in rate may be strong enough to warrant issuing a new interest rate offering to those who have not yet entered into a mortgage rate lock agreement with the lender.
FICO Scores Affect The Mortgage Rate You Are Offered
FHA loan rules say that FICO scores will affect the amount of down payment you are required to make; FICO scores also affect what interest rate your lender may offer. FHA borrowers with good FICO scores are viewed as less of a credit risk and may be offered more competitive interest rates as a result.
FHA Home Loan Interest Rates May Vary Depending On The Type Of Loan
Borrowers applying for a fixed rate FHA mortgage will get a higher interest rate than those who choose an FHA Adjustable Rate Mortgage. The trade-off here is that the FHA Adjustable Rate Mortgage (also known as an ARM loan) will not maintain that lower interest rate forever. The low initial rates you get on an FHA ARM loan are scheduled to change depending on the type of ARM you apply for.
Your low introductory rate could last a year, three years, or longer depending on what you and the lender agree to.
Interest rates for FHA ARM loans are only permitted to be adjusted according to a specific schedule, but the rates WILL change at some point. Borrowers who use ARM loans often plan to sell or refinance before the interest rate gets adjusted too much.
Online Interest Rates Assume A Well-Qualified Borrower
The interest rates you see quoted for home loans online may be calculated using the most ideal conditions possible; the “best execution” mortgage loan interest rates assume high FICO scores, excellent credit history, stable employment, etc.
Ideal conditions are not possible for all borrowers but the best execution mortgage loan interest rate is a way to show what rate you COULD be offered if you are a well-qualified applicant.
Those interest rates are not a guarantee that the same will be offered to all applicants.
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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