June 12, 2015
We get many reader questions about interest rates on FHA home loans, and it’s clear from these questions that a misconception still exists–some people believe the FHA sets or regulates the interest rates on FHA single family home loans. This is not true, but in spite of that we get variations on a common type of question that goes something like this: “Should I expect an FHA loan interest rate above XYZ? What kind of interest rate should I be getting?”
The truth is that FHA loan interest rates, while lower than the conventional equivalents, is still subject to negotiation between the borrower and the lender. A hypothetical FHA loan interest rate of 3.75% (which is at the time of this writing the “best execution rate” for an FHA loan assuming an extremely well-qualified applicant) might be offered to an FHA loan applicant, but the process of determining that interest rate begins when the lender does the credit review.
Your credit history and FICO scores play a big role in the interest rate offered to you. A “well qualified” FHA loan applicant with high credit scores and excellent loan repayment history will likely be offered a more competitive interest rate than someone with lower FICO scores and a less dependable pattern of repayment on financial obligations.
The key to the best possible results where interest rates are concerned is to establish at least a full year or more of on-time bill payment and bringing the highest possible FICO score to the bargaining table at loan application time. Borrowers can get help and advice on pre-purchase issues like these by calling the FHA directly at 1-800 CALL FHA and requesting a referral to a HUD-approved housing counselor in your local area.
Housing counseling is always a good thing even if your credit scores are solid; you never know what kind of advice your housing counselor might be able to give in order to improve your chances at FHA loan approval and a more successful house hunting experience overall.
Do you have questions about FHA home loans? Ask us in the comments section. All comments and questions are held for moderation.
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.
Browse by Date: