Are FHA Mortgage Rates Better / Lower Than Conventional?

Are FHA mortgage rates lower than those assigned to conventional home loans?

This is a common question among borrowers who are thinking about using the Federal Housing Administration’s home loan program. While rates vary from one loan to the next, industry statistics show that FHA mortgage rates are often better / lower than conventional.

Report: FHA Mortgage Rates Lower Than Conventional

Home buyers turn to the FHA loan program for a number of reasons. It offers a low down payment of 3.5% and flexible qualification criteria, when compared to a conventional mortgage.

But there’s another potential benefit as well. FHA rates are often lower than those assigned to conventional mortgage products. In fact, the latest industrywide surveys clearly confirm this trend.

Each week, the Mortgage Bankers Association (MBA) publishes a home loan application survey that reveals current trends across the mortgage industry. In their latest survey, published on November 8, the industry group reported the following:

  • The average interest rate assigned to a 30-year fixed rate conventional mortgage with a conforming loan balance was 4.18%, for the week ending November 3, 3017.
  • The average rate assigned to a 30-year fixed FHA loan was 4.05%, during the same week.

This is just one report that reinforces what we’ve stated above. FHA mortgage rates are often better and lower than conventional loans — at least on average.

Borrowing Costs Can Vary

The MBA report cited above looks at average rates for FHA conventional loans, with a weekly snapshot taken from loans originated across country. These averages are useful in that they help us identify certain trends, such as the fact that FHA rates can be lower than conventional.

But the actual rate that you receive on a home loan – whether it’s an FHA or conventional mortgage product – might be higher or lower than average due to a number of factors.

Mortgage lenders use risk-based pricing when assigning interest rates to home loans. This means that borrowers who are considered a higher risk for the lender (and/or investor) are generally charged higher mortgage rates.

Risk can be measured in a number of ways, such as a person’s credit score and debt-to-income ratio. The size of the down payment and the corresponding loan-to-value ratio also play a role here.

So keep this in mind when viewing average interest rates and similar reports that cover the industry as a whole. Yes, FHA rates tend to be lower / better than conventional mortgage loans. But this is based on averages. The only way to find out what kind of rate you qualify for is to apply for a mortgage quote from a lender. Better yet, obtain multiple quotes so you can compare costs.

What Are Rates Expected to Do in 2018?

FHA and conventional mortgage rates have been hovering around 4% for the last few months (as of mid-November 2017). This has helped to sustain mortgage lending activity nationwide. But there’s no telling how long rates will remain at their current low level.

Forecasts from both Freddie Mac and the MBA suggest that FHA loan rates will rise gradually over the coming months. Economists from both groups have predicted higher borrowing costs in 2018, compared to where we are right now.

So if you’re in the market for a mortgage loan, you might want to consider applying for one sooner rather than later. Postponing your home purchase or refinance might mean that you’ll encounter higher borrowing costs.

Disclaimer: This article answers the question, are FHA loan rates better than conventional? This article uses statistical averages provided by the Mortgage Bankers Association and other sources. Actual rates assigned to home loans can vary due to a number of factors, including the borrower’s credit score and the type of loan being used.