What is an FHA loan?

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 less-than-stellar credit profiles and little cash saved for a down payment a shot at homeownership.


How can I get the lowest current FHA rates?

Shop around. Your best bet for getting the lowest FHA interest rates is to compare the loan estimates of at least three to five different FHA-approved lenders. Compare each lender’s closing costs, too. A lower rate with high costs may not be the best deal if you don’t have the extra cash to cover the fees. 

Boost your credit scores. The higher your credit score, the lower your FHA interest rate will be. You can improve your credit score by paying bills on time and capping monthly credit charges to 30% of your account limits.

Ask the seller to buy discount points. One full discount point equals 1% of your loan amount, and paying points typically buys you a lower interest rate. You can ask the seller to pay up to 6% of the price of your home toward closing costs, including discount points, to get a lower FHA interest rate.

Has the coronavirus pandemic impacted FHA loan rates?

FHA interest rates are typically lower than a comparable conventional loan. However, recent data suggest a higher share of FHA borrowers are seeking coronavirus mortgage relief, leading lenders to shy away from riskier FHA loans. As a result, FHA interest rates may be higher than conventional rates and qualifying standards may be more stringent.

The graphic below compares conventional and FHA weekly rates since the beginning of 2020, and reflects the recent spike in FHA interest rates.

Why is the APR so much higher than the FHA interest rate?

An annual percentage rate (APR) reflects other costs related to getting a mortgage, such as origination fees and discount points. However, the APR on FHA loans is often much higher than FHA interest rates because of the higher cost of FHA mortgage insurance.

FHA loans require two types of mortgage insurance to protect lenders against default. The first is an upfront mortgage insurance premium (UFMIP) paid in a one-time lump sum. The second is the mortgage insurance premium (MIP), an ongoing annual charge that becomes part of your monthly payment.

Other FAQs about FHA loans

  1. Can I get a lower rate with an FHA adjustable-rate mortgage? Yes. A variety of FHA adjustable-rate mortgages (ARMs) are available with introductory fixed-rate periods of 1, 3, 5, 7 or 10 years. Once the initial fixed-rate period ends, the loan will adjust, meaning your rate and payment could rise or fall for the remainder of the loan term. 
  2. Is an FHA 30-year fixed-rate my only option? 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.
  3. Can I get rid of FHA mortgage insurance? FHA mortgage insurance is mandatory for the life of an FHA loan. To get rid of these payments, you’ll need to put down at least 10% or refinance to a conventional mortgage.
  4. How do I find FHA lenders to compare rates? 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.