FHA Interest Rates and Comparing Loans

The cost of an FHA mortgage has dropped dramatically in the past year or two. While the guidelines are constantly changing, the cost of an FHA loan remains a combination of the interest rate, the up-front mortgage insurance premium (UFMIP) and the monthly mortgage insurance premium (MIP). The easiest way to look at this is that the UFMIP is spread out over how long you are in the home and that the interest rate and MIP are added to give you a rough idea of what the effective mortgage rate is.

FHA loans are more lenient on credit scores than many conventional loans and the related private mortgage insurance. It makes sense to compare the loans in an FHA vs. Conventional Calculator to get a better estimate. Very often, the lower MIP will add up over time, but there is the UFMIP of 1% that generally makes the FHA loan more expensive in the first year or two. It is worth looking at the loan comparison over time, something that you can easily see in the graphs section in the calculator.

There is no best loan for all home buyers, but comparing the loans generally makes a lot of sense. As always, get a current FHA interest rate and run your own comparisons. FHA loans have some incredible value for some people, for others, a conventional loan can be a better option.