An FHA loan is a type of mortgage insured by the Federal Housing Administration (FHA). It allows borrowers with low credit scores to buy a home with a down payment as low as 3.5%. FHA loan guidelines are more lenient than conventional loans, giving borrowers with spotty credit histories and little cash saved for a down payment a shot at homeownership.
Start searching for FHA loan rates with a few simple pieces of information:
“As is the case with standard conventional mortgages, the rates offered on FHA loans have increased significantly since the start of 2022,” according to Jacob Channel, LendingTree’s senior economist.
And that trend isn’t likely to end anytime soon: “Unfortunately, FHA rates may continue to climb as the year goes on,” he adds.
An FHA loan rate is offered only loans backed by the FHA, a government agency that insures home loans for borrowers with lower credit scores and down payments than some other mortgage programs allow. Only FHA-approved lenders can offer FHA rates, which is important to know when you’re rate shopping.
Yes, but there’s a catch: Annual percentage rates (APRs) are often higher than comparable conventional loans. There’s one primary reason for this: FHA mortgage insurance. Mortgage insurance protects lenders if you can’t make your payments and your mortgage company forecloses on your home.
You have to pay two types of mortgage insurance on an FHA loan. There’s an upfront mortgage insurance premium (UFMIP) of 1.75% of your loan amount that’s usually added to your loan balance. The second type of insurance is an annual fee ranging from 0.45% to 1.05% of your loan amount, divided by 12 and added to your monthly payment. The high cost of FHA mortgage insurance often drives up your APR, which reflects the total cost of getting a mortgage.
Shop around. Compare the loan estimates of at least three to five different FHA-approved lenders. Focus on each lender’s closing costs, too (closing costs typically range from 2% to 6% depending on your loan amount). A lower rate may come with higher costs, so make sure you have extra cash to cover these fees.
Boost your credit scores. Although the FHA doesn’t require a high credit score to be approved for a loan, a higher credit score can get you a lower FHA interest rate. Improve your credit score by paying bills on time and capping monthly credit card charges to 30% of your account limits.
Ask the seller to buy discount points. One full discount point — also called a mortgage point — equals 1% of your loan amount. Paying points typically buys you a lower interest rate, and you can ask the seller to pay up to 6% of your home price toward closing costs (including discount points) to get a lower FHA interest rate. One added bonus of paying discount points: You may be able to deduct the cost of the points when you file your taxes.
Choose a shorter term. If you can afford a higher monthly payment, your FHA loan rate will be lower with a shorter term, like a 15-year fixed-rate mortgage. You can save thousands of dollars in interest over the life of the loan.
| Pros | Cons |
|---|---|
Your rate is typically lower than a conventional loan’s rate | Your APR may be higher, due to mortgage insurance charges |
You can get an FHA rate quote with a credit score as low as 500 | Your monthly payment may be higher — even if your rate is lower — due to mortgage insurance charges |
You may qualify for rate reduction options that don’t require income verification or an appraisal | You may end up with a higher-priced mortgage loan (HPML) if your credit scores are low |
You’ll need the meet the minimum requirements below to be approved for an FHA loan
Minimum FHA qualifying requirements
| Down payment | 3.5% with a 580 score 10% with a 500 to 579 score |
|---|---|
| Down payment | 3.5% with a 580 score 10% with a 500 to 579 score |
| Credit score | 580 with a 3.5% down payment 500 to 579 with a 10% down payment |
| DTI ratio | 43% with exceptions up to 50% or higher |
| Occupancy | Must live in home as primary residence |
| Income | Stable two-year employment history No income limits |
| Assets | Down payment can be gifted by an employer, family member, close friend or charitable organization |
| Loan limits | $420,680 for one-unit home in most parts of the country Higher FHA loan limits may be available in high-cost areas |
Yes. A variety of FHA adjustable-rate mortgages (ARMs) are available with introductory fixed-rate periods of one, three, five, seven or 10 years. Once the initial fixed-rate period ends, the loan will adjust, meaning your rate and payment could fluctuate for the remainder of the loan term.
No. You can choose a shorter loan term, such as a 15-year fixed-rate mortgage. The rate is typically lower, and you’ll save thousands in interest charges over the life of the loan. An added bonus: You’ll pay less in annual mortgage insurance premiums.
FHA mortgage insurance is mandatory for the life of an FHA loan with a 3.5% down payment; with a 10% down payment, you’ll pay the premiums for 11 years. To get rid of these payments, you can refinance into a conventional loan after you’ve built 20% equity.
Try a comparison rate site, or ask for a referral from a friend, family member or a real estate agent. You can look up FHA-approved lenders online with the U.S. Department of Housing and Urban Development’s lender list search tool.
Yes — which is why you should always compare loan estimates from at least three to five different FHA-approved lenders before you decide which one is best for you.
FHA interest rates are typically lower than conventional loans, before adding upfront and annual mortgage insurance premiums to the equation. However, when you add in FHA mortgage insurance, the APRs may make FHA loans more expensive than comparable conventional loans.
