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FHA Rates Better Than Conventional Rates
FHA requirements less rigid than conventional
April 17, 2017
By SAM GARCIA Mortgage Daily
Conventional wisdom has home shoppers with a low-down-payment FHA loan having a higher rate. But FHA rates have consistently been lower than conventional rates.
Conventional loans account for a majority of single-family mortgages that consumers normally use to finance a home purchase or refinance an existing mortgage.
After the closing, conventional loans are bought or guaranteed by Fannie Mae or Freddie Mac, the two big secondary market lenders that are currently controlled by the government.
In February, interest rates on 30-year conventional loans averaged 4.48 percent -- the highest they've been since October 2014 -- according to data from Ellie Mae Inc., which provides technology to process a big share of the nation's mortgage business.
But 30-year rates on home loans that are insured by FHA -- formally known as the Federal Housing Administration
-- averaged 4.28 percent in February 2017 -- 0.20 percentage points better than conforming rates.
It was similar a year earlier, when conventional rates were 4.29 percent and FHA rates were just 4.17 percent.
In fact, interest rates on FHA mortgages have been lower each month since at least January 2013 -- the oldest data available from Ellie.
Credit guidelines for FHA borrowers are more relaxed than for conventional programs.
In addition, home buyers who go with an FHA mortgage can pay a little as 3 percent down.
Borrowers who utilize FHA programs will need to pay mortgage insurance premium to FHA, which takes a hit when the borrowers don't pay.
But even on conventional loans, consumers must buy a policy from a private mortgage insurance company when they make less than a 20 percent downpayment, though conventional borrowers can avoid PMI with 10 percent down and a 10 percent second mortgage.