FHA Loan Interest Rates: What You Need To Know Before You Shop
FHA loans are government loans, but FHA loan interest rates are not set by the government. These mortgages are funded by private lenders that set their own pricing according to their policies and market conditions. FHA mortgage rates, like rates of conventional (non-government) programs, rise and fall as financial markets change. Just like conventional mortgage rates, FHA loan interest rates are affected by global events, lender pipelines (how much business they have), the terms of the loan and the borrower's qualifications.
Other FHA costs, however, ARE set by the government, and changes in the law can radically affect the rates borrowers pay. It's important, then, for those considering FHA financing to keep on top of impending changes that can affect their costs, and time their purchases or refinances accordingly.
For example, FHA requires mortgage insurance -- both an upfront sum, which can be financed (added to the mortgage balance) or paid out-of-pocket, and an annual premium, which is divided by 12 and added to the monthly payment. Between 2008 and 2014, the annual premium increased several times from .5 percent for most loans to its current 1.35 percent. In addition, the upfront charge, which was 1.75 percent of the loan amount before April 5, 2010, has undergone several transformations -- increased to 2.25 percent, then lowered to 1.00 percent (the drop was supposed to offset an increase in annual premiums), and then it was bumped back to 1.75 percent (in addition to the higher annual premiums).
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