Mortgage interest rates are rising right along with home prices. That means homebuyers need to pay extra attention to everything that goes into buying a home. Here’s what to know if you’re considering an FHA loan for your home purchase.
The Latest Mortgage Rate & Housing News
What’s Going On With Rising Mortgage Rates?
The surge in mortgage rates so far this year is due to a variety of economic factors. Persistently high inflation is a big one. August’s inflation report showed prices up 8.3% year-over-year, which was lower than July’s 8.5% but higher than expected.
Another important driver behind mortgage rate increases is the latest rate hike by the Federal Reserve — the central bank’s third 75-basis-point increase in a row. “Until we get some sustained evidence that inflation is beginning to recede, the upward pressure on mortgage rates will remain,” Odeta Kushi, deputy chief economist at First American Financial Corporation, told us.
Mortgage rates rose significantly after the inflation report, topping 6% for the first time since 2008. But they don’t correlate directly with the Fed’s benchmark rate, so they may not increase again after this latest hike. .
“If the Fed does what everyone expects them to do, I personally don’t see the 30-year fixed rate increasing,” Nicole Rueth, producing branch manager with the Rueth Team Powered by OneTrust Home Loans, told us. “I think what happened after the CPI report was that reaction baking in.”
What Can Homebuyers Do About Rising Mortgage Rates?
The current housing environment may be especially intimidating for first-time homebuyers, but that doesn’t mean it’s unrealistic to buy. “It’s always a good time to buy a home, if that’s what is important to you. It’s just about doing your research and making good informed decisions,” Eileen Derks, head of mortgage at Laurel Road, told us.
Mortgage rates are significantly higher than they were a year ago which can eat into potential buying power. But on the flip side, home prices are decreasing compared to last year, and the market is significantly less competitive too.
“If you have a job and your credit is fine, you should be able to refinance in a few years. So, there isn’t a ton you need to be worrying over when it comes to a higher interest rate,” Shashank Shekhar, founder and CEO of InstaMortgage, told us.
This level of inflation won’t last forever, just longer than any of us would like. In fact, the housing market is already beginning to balance out as it adjusts to regular rate hikes from the Fed. “Be patient, but don’t necessarily be discouraged,” says Kushi.
What Can Homebuyers Do About Rising Home Prices?
According to the latest report by the National Association of Realtors (NAR), the housing market saw its seventh consecutive month of decreased home sales in August – dropping 0.4% from July and nearly 20% from August 2021.
Home prices are slowly declining, but high mortgage rates might discourage both potential homebuyers and potential sellers. “Homeowners are going to be rate-locked into their homes and buyers might be hesitant to enter the market,” says Kushi.
85% of homeowners with mortgages have an interest rate well below 6%, according to a Redfin analysis of Federal Housing Finance Agency (FHFA) data. This could influence housing supply as some homeowners are reluctant to move “because selling their home and buying another could mean giving up their low mortgage rate,” in exchange for a higher monthly payment, according to Redfin.
Kushi describes this phenomenon as “the golden handcuffs of low mortgage rates.”
“The most important thing that any would-be homebuyer should do is take stock of where they are personally,” Jacob Channel, senior economic analyst at LendingTree, told us. “Do I have enough cash to make my mortgage payments, to put money down on a down payment? Is my credit score good?” Then, be patient and be creative with your home search. Don’t rush for the first houses you see, he says.
Look in unexpected places. One possibility is the U.S. Department of Housing and Urban Development’s page of foreclosed homes. “The more you plan and the more diligent you are before you really even start going out house hunting actively, the easier it is to navigate a housing market that is as hot and fast as this one,” Channel says.
It’s more important than ever to shop around for a mortgage when you’re in the market for a house, said Channel. When rates aren’t going up as dramatically as they are now, quotes from different lenders can regularly vary by half a percentage point. With the market moving so quickly, that could be even higher.
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Whether you are looking to refinance or purchase, you can compare lender offers here using this Home Loan Comparison Calculator. You can enter in the loan amount, rate, fees, and term for each offer and see a true side-by-side comparison.
What Are Today’s FHA Mortgage Rates?
On Thursday, October 06, 2022 according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the average 30-year FHA mortgage rate is 6.040% with an APR of 6.900%. The average 30-year FHA mortgage refinance rate is 6.010% with an APR of 6.880%.
Current FHA Mortgage rates
| Product | Interest Rate | APR |
|---|---|---|
| 30-Year Fixed Rate | 6.890% | 6.910% |
| 30-Year FHA Rate | 6.010% | 6.880% |
| 30-Year VA Rate | 6.170% | 6.380% |
| 30-Year Fixed Jumbo Rate | 6.880% | 6.900% |
| 20-Year Fixed Rate | 6.910% | 6.930% |
| 15-Year Fixed Rate | 6.090% | 6.130% |
| 15-Year Fixed Jumbo Rate | 6.050% | 6.080% |
| 10-Year Fixed Rate | 6.120% | 6.160% |
| 5/1 ARM Rate | 5.300% | 6.730% |
| 5/1 ARM Jumbo Rate | 5.280% | 6.460% |
| 7/1 ARM Rate | 6.080% | 6.410% |
| 7/1 ARM Jumbo Rate | 6.220% | 6.290% |
| 10/1 ARM Rate | 6.280% | 6.390% |
| Product | Interest Rate | APR |
|---|---|---|
| 30-Year Fixed Rate | 6.890% | 6.910% |
| 30-Year FHA Rate | 6.040% | 6.900% |
| 30-Year VA Rate | 6.190% | 6.310% |
| 30-Year Fixed Jumbo Rate | 6.880% | 6.890% |
| 20-Year Fixed Rate | 6.910% | 6.930% |
| 15-Year Fixed Rate | 6.070% | 6.110% |
| 15-Year Fixed Jumbo Rate | 6.050% | 6.080% |
| 10-Year Fixed Rate | 6.120% | 6.160% |
| 5/1 ARM Rate | 5.340% | 6.870% |
| 5/1 ARM Jumbo Rate | 5.330% | 6.930% |
| 7/1 ARM Rate | 6.040% | 6.450% |
| 7/1 ARM Jumbo Rate | 6.220% | 6.300% |
| 10/1 ARM Rate | 6.230% | 6.410% |
Rates as of Thursday, October 06, 2022
ABOUT THESE RATES
These rate averages are based on weekday mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures. These averages provide borrowers a broad view of average rates that can inform borrowers when comparing lender offers. We feature both the interest rate and the annual percentage rate (APR), which includes additional lender fees, so you can get a better idea of the overall cost of the loan. The actual interest rate you can qualify for may be different from the average rates quoted in our rate table. But these rates are useful for giving you a benchmark to use when comparing loan offers by giving you a sense of how the type of mortgage and the length of the repayment term impacts your interest rate and APR.
The Pros and Cons of an FHA Loan
FHA loans are useful for people who can’t afford a large down payment, who don’t have top credit scores, and others who have trouble qualifying for a decent interest rate with a conventional loan. But because of the additional restrictions and fees, FHA loans aren’t ideal for every homebuyer.
Pros
Low down payment
Can qualify with a lower credit score
Favorable rates for borrowers with low credit scores
Higher DTI ratio allowed, up to 43%
Cons
Upfront mortgage insurance premium payment
Cannot exceed the FHA loan limits
More strict appraisal standards
Can’t waive private mortgage insurance at 20% equity
FHA Loans: Frequently Asked Questions (FAQ)
What is an FHA loan?
An FHA loan is a mortgage that’s issued by a traditional mortgage lender but backed by the Federal Housing Administration (FHA). Because these home loans are backed by the government, they’re easier to qualify for if you have less-than-perfect credit. But FHA loans also have more limitations than conventional loans, such as stricter appraisal standards.
FHA loans can be ideal for first-time home buyers because they offer competitive mortgage rates, and have low down payment requirements of as little as 3.5%. These mortgages are available for residential property of up to four units that is intended to be your primary residence.
Who qualifies for an FHA loan?
The FHA publishes its loan requirements each year, providing information on required documentation as well as credit score and debt-to-income (DTI) ratio needed to qualify. The FHA also sets maximum loan limits, which are based on where the property is located. In 2022, these limits for single family homes range from $420,680 to $970,800.
The credit score you need to qualify for an FHA loan varies depending on your down payment. With a minimum down payment of 3.5% of the purchase price you need a credit score above 580. If you bump up your down payment to at least 10%, the minimum credit score drops to 500.
Just keep in mind that each lender has its own additional guidelines, which are usually more stringent than the minimum requirements. So make sure to contact your bank or credit union to learn more about its requirements beforehand.
How do I compare FHA loans to other mortgage rates?
Typically, FHA loans offer rates that are more favorable than conventional mortgage rates and refinance rates — especially for borrowers with lower credit scores. But you need to look beyond the interest rate when comparing offers, and also consider the fees associated with the loans.
An FHA loan has an upfront mortgage insurance premium of 1.75%, in addition to monthly mortgage insurance costs. With a conventional loan, you can waive the mortgage insurance requirement with a down payment of at least 20%.
What is the difference between an FHA loan vs. 30-year fixed loan?
If you can qualify for a conventional 30-year fixed-rate mortgage and a 30-year FHA loan, which one should you choose? There’s no universal answer to which is better, so everything from your personal circumstances to the current real estate market should be taken into consideration.
Right now it’s a seller’s market. Housing inventory is low, which has created bidding wars among buyers. In these scenarios, sellers typically prefer offers from buyers that will be financing their purchase with a conventional mortgage. This is because the perception is that government-backed loans have more hoops to jump through and will take longer to close or have a higher likelihood of hitting a snag that ruins the deal. So right now, a conventional loan will give you a better chance of getting your offer accepted in many parts of the country.
But FHA loans can have lower down payment requirements. The difference between a down payment of 3.5% versus 10% or 20% can be tens of thousands of dollars. Being able to move into a new home with a healthy emergency fund may be a better overall life choice then potentially paying less in mortgage insurance with a conventional loan.
What are the FHA loan requirements?
FHA loans can be easier to qualify for if you have a lower credit score or smaller down payment, but the FHA loan requirements are less flexible than some other types of home loans.
The minimum FHA credit requirement varies depending on the size of your down payment, and is:
- 580 or higher with a 3.5% down payment
- 500 to 579 with a 10% down payment
It’s important to note that these numbers are the government’s minimum standards, but lenders will add what are known as “overlays.” An overlay is a guideline that goes beyond what the government requires. So in reality, most lenders require a credit score of 620 to qualify for an FHA loan.
There are also FHA loan limits on the size of an FHA loan that vary depending on the housing market of an area. For 2022 the limits for single family homes are:
- Standard: $420,680
- High-cost area: up to $970,800
How do I find a personalized FHA loan rate?
Mortgage rates for FHA loans vary by lender, so you’ll have to shop around to find personal rates. When you’re trying to find the best FHA lender, remember that not every lender will offer FHA loans. So you can narrow your search by limiting your options to those that offer FHA loans.
Once you’ve found a few lenders you want to work with, you can call to ask what rate you may be eligible for, but the lender won’t be able to guarantee a rate until you fill out an application. Most lenders don’t charge application fees. But lenders will want to verify your income, assets, debts, and your credit score, all of which impact what rate you can qualify for.
