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FHA Mortgage Interest Rates 2015. Compare and Find the Lowest FHA Mortgage Interest Rates Online Today.

Owning a house is one of the chief desires for every household. At the same time, the expense in buying and furnishing a house is the biggest expense for most of the individuals. Ideally the lenders ask for a minimum of 10-20% down payment while giving loans to buyers.

However, there are households who might not be able to afford this requirement. FHA or Federal Housing Administration makes this onerous task a lot easier. FHA provides insurance on the mortgage taken by the buyer. This protects the lender against any default on payments by the buyer.

The primary purpose of the FHA loans is to provide lower income groups an alternative through which they can purchase their home. This program was started in the 1930s during the height of the Great Depression. The government wanted to increase the demand for housing that would lead to higher construction and thus greater job opportunities. This helped the economy tremendously, especially when the unemployment rate was very high.

The FHA insurance comes in two parts:
An Upfront mortgage insurance premium (UMIP) which is currently 1.75% of the loan amount during closing and a monthly Mortgage insurance premium (MIP) which depends on the term of the mortgage and the loan to value ratio. Loan to value ratio (LTV) is the amount of loan taken out in relation to the value of the house. Example: If mortgage is $190,000 and the value of house is $200,000, the loan to value= $190,000/$200,000=95%).

Currently, the MIP for different categories is:

TERM GREATER THAN 15 YEARS
Base Loan Amount LTV Annual MIP
Less than or equal to $625,000 Less than or equal to 95% 1.30%
Less than or equal to $625,000 Greater than 95% 1.35%
Above $625,000 Less than or equal to 95% 1.50%
Above $625,000 Greater than 95% 1.55%

And

TERM LESS THAN OR EQUAL TO 15 YEARS
Base Loan Amount LTV Annual MIP
Any Loan Amount Less than or equal to 78% 0.45%
Less than or equal to $625,000 Less than or equal to 90% 0.45%
Less than or equal to $625,000 Greater than 90% 0.70%
Above $625,000 Less than or equal to 90% 0.70%
Above $625,000 Greater than 90% 0.95%

FHA insured loans have many advantages. Although an extra fee is attached to the mortgage, it can be very useful for families who cannot afford the heavy down payment or who do not meet the exact requirements of the lenders. Some of the advantages of FHA are:
Minimum Down Payment: This is the biggest advantage of these loans and one of the primary reasons this program was started. A conventional loan which is taken in the market requires a minimum down payment of 10% and sometimes even 20% of the value of the house. For a $200,000 a 20% down payment is equal to $40,000. This is a huge amount for many households, and they might not be able to fork out this amount in one go. However, FHA insured mortgages can be obtained for a down payment of 3.5% or in this case $7,000. This makes it much more affordable for the majority of citizens.

Low Credit Score requirement: Regularly a conforming mortgage requires a credit score of at least 650 and many times 680 or higher depending on the type of mortgage taken. However, an FHA insured loan can be taken with a credit history of 580. Loans can be available for credit score of 500-579 where the loan to value ratio is 90%. In special circumstances, lower credit score is also accepted after due consideration.

Affordable interest rate: The interest rates provided by FHA backed lenders are competitive with the conforming loans. The main reason is that the risk of buyer default is taken up by FHA. For the past several decades, the interest difference between FHA and non-FHA sponsored mortgage has been within 1% points.

Higher Debt Ratio: The lenders use Debt to Income (DTI) ratio to measure the affordability of the mortgage for the buyer. For a conventional loan, the monthly mortgage payment to monthly gross income should be a maximum of 28%. For FHA, this is 29%. Also, the total monthly debt (which includes car payments, credit card payments, other installment loans and mortgage payments) should have a DTI of 36%. In the case of FHA sponsored loans this is 41%. Hence, it provides a much-needed respite for buyers who find it tough to meet this requirement.

Seller contribution: It allows the sellers, builders or lenders to pay a part of the closing cost of the mortgage. A seller might provide this incentive to the buyer of a property in order to offload the property faster and to reach out to a larger customer base.

However, FHA sponsored mortgage might not be suitable for all individuals and at all times. As a rule of thumb if you can afford more than 10% down payment and have a credit score of 720 or more you should not get with FHA mortgage. There are much better alternatives in the market that will provide lower monthly mortgage payments than FHA. We can see a comparison of FHA and Private Mortgage Insurance (PMI) in the chart below.

It can be seen that when the economy is strong there is a larger market share for private insurers and similarly when economy is weak the market share of FHA increases substantially.

http://portal.hud.gov/hudportal/documents/huddoc?id=fharates_current.pdf

FHA rates for all programs are at an all time low. Look at this chart showing rates and number of loans closed using the program.

Year Average rate for that year Number of cases
1992 7.85% 513,970
1993 7.45% 698,012
1994 6.93% 930,001
1995 7.42% 393,475
1996 7.19% 560,247
1997 7.07% 515,444
1998 6.71% 801,619
1999 6.52% 1,141,979
2000 7.08% 775,202
2001 7.08% 979,977
2002 6.68% 1,104,062
2003 6.01% 1,128,108
2004 5.69% 783,472
2005 5.63% 430,425
2006 5.77% 396,848
2007 5.95% 405,394
2008 6.01% 1,034,316
2009 5.63% 1,731,343
2010 5.23% 1,510,542
2011 4.66% 1,039,951
2012 3.97% 1,045,129
2013 3.53% 881,369

 

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