FHA Loan Mortgage Rates

May 29, 2023 | Mortgage Guides

For decades, FHA loans have made homeownership more accessible by providing a variety of options for potential borrowers. This government-backed loan is ideal for individuals with low credit ratings and high debt-to-income ratios. If you have a poor financial history and cannot qualify for other types of home loans, an FHA mortgage might work to your advantage. Mortgage lenders such as banks and credit unions can provide more information about FHA loans for interested borrowers.

Many borrowers explore FHA loans and their associated interest rates in addition to conventional mortgage options. This guide discusses various aspects of FHA loan interest rates, from how they are calculated and what factors can impact them to how they compare to other loan types.

What Is an FHA Loan? 

The Federal Housing Administration insures FHA loans. These loans have a 15-year fixed-rate term or a 30-year fixed-rate term. FHA loans accept a 3.5% down payment and are ideal for first-time homebuyers who:

  • Have credit scores as low as 580
  • Have a debt-to-income (DTI) ratio of 43% or less
  • Have low income but at least 1 – 2 years of consistent employment history
  • Are shopping for properties that meet FHA regulations

Individuals can apply for an FHA loan through credit unions, banks, and private lenders. These loans can be used to finance single-family and multi-family homes or condominiums. Homeowners can also use them for construction or renovation.

Interest Rate 

Interest rates on FHA loans are often below market value. However, they are not always lower than interest rates on conventional loans. Your final rate will depend on several factors, including:

  • Your credit score
  • Your annual income
  • The size of your down payment
  • The lender‍

A high credit score and sizable down payments can decrease your final interest rate. Your FHA mortgage insurance is another factor that might affect your total interest rate. An FHA rate of 3% and a mortgage insurance rate of 0.9% means you pay 3.9% of your loan per year. Various lenders will charge different rates, so to get the best possible interest rate, always consider multiple options from different mortgage lenders.

Monthly Mortgage Insurance Premium (MIP)

FHA Monthly Mortgage Insurance protects lenders in case you default on your loan. This insurance charges an upfront fee of 1.75% of the loan amount. Homebuyers can pay the upfront mortgage insurance premium after closing or roll the amount into their loan – keep in mind that doing so will increase monthly payments.

Monthly premiums will vary according to the total loan amount, the size of the down payment, and mortgage terms. On average, premiums will range between 0.45% to 1.05% of the total loan amount per annum.‍

By making a 10% down payment, you won’t have to pay mortgage insurance premiums (MIPs) for the life of the loan. Otherwise, the only way to cancel mortgage insurance is to refinance into a non-FHA loan.

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The Pros and Cons of an FHA Loan

FHA loans are most popular among low—to middle-income homebuyers. Their lenient qualifications allow first-time buyers to purchase properties without making a high down payment.

‍While there are other advantages to taking out an FHA loan, it also has a few drawbacks. Below are the pros and cons of taking out an FHA mortgage.


  • Buyers can make a low down payment: Unlike a conventional loan that requires at least a 10% down payment, FHA borrowers can pay as little as 3.5%. The FHA permits financing for business owners and those interested in real estate investments through family members, friends, or charitable organizations.
  • Buyers can qualify with a low credit score: Though the average credit score in the U.S. is 711, many individuals fall far below that. Some lenders will accept a credit score of as low as 500, given that the applicant makes at least a 10% down payment. Individuals can apply even with a history of bankruptcy or foreclosure. If necessary, you can improve your credit score by paying off debts on credit cards or staying current on mortgage payments for your primary residence.‍
  • Buyers can qualify with a high debt-to-income (DTI) ratio: When you divide your monthly debt by your gross monthly income, you get your DTI ratio. FHA loans accept applicants with a DTI ratio of up to 43%. This means you can bring more debt to the table when applying for a loan. ‍
  • Buyers aren’t restricted to income limits: Some homebuyers with high incomes fail to qualify for a conventional mortgage due to low credit scores. FHA loans don’t place income caps on those who can’t afford a large down payment. ‍
  • There is no penalty for early repayment: Homeowners can sell their homes or refinance their mortgages without a prepayment penalty. ‍
  • Many home types are available: FHA loans allow buyers to purchase single or multi-family homes, apartments, condominiums, or manufactured properties.


  • Mortgage insurance can become costly: An upfront premium will cost 1.75% of your total loan. On top of that, you’ll have to pay monthly premiums that run up to 1.05% of the base loan amount. Alas, unlike private mortgage insurance (PMI), you cannot eliminate mortgage insurance on an FHA loan. The only way to get rid of your mortgage insurance is to refinance into another type of loan. ‍
  • Loan limits are low: How much you can borrow will depend on which state you live in. You may not qualify for the home you want if you reside in an affluent area. While conforming loan limits in low-cost regions are above $500,000, current FHA loans have a ceiling of $356,362.‍
  • Property standards are stringent: Properties under FHA-backed loans must adhere to minimum safety standards. Sometimes, you may have to pay for an appraisal, which costs more than a typical home inspection. People looking to buy a fixer-upper or property in poor structure may have difficulty securing an FHA loan. Furthermore, people applying for an FHA mortgage can only purchase primary residences—not rental or vacation homes.

Factors That Affect FHA Loan Interest Rates

FHA mortgage rates will vary. Some lenders will determine your interest rate based on how risky you are to insure. FHA loan interest rates are typically based on the borrower’s credit score, loan-to-value ratio, and debt-to-income ratio. Other factors that affect mortgage rates include the state of the economy and investor demand.

‍While it can be challenging to predict your FHA mortgage rate, below are a few components that might influence your estimate.

Economic Conditions 

A healthy economy will usually cause FHA mortgage rates to rise. This is because a growing economy produces higher incomes, encouraging consumer spending. However, lenders only have so much money for homebuyers to borrow. Thus, increased demand for mortgages allows lenders to increase their prices. The process of obtaining a mortgage often involves working with a mortgage calculator to estimate monthly payments, taking into account factors like amortization, escrow, and taxes.

On the other hand, a poorly performing economy causes a decline in wages and employment. These circumstances lead to lower demand in the housing market, causing interest rates to drop. Lower rates can result in borrowers accumulating more home equity over time due to decreased interest costs.

Loan-To-Value Ratio 

A loan-to-value ratio divides the borrowing amount by the property’s value. Factors such as amortization and escrow can provide a more accurate representation of long-term mortgage costs, including taxes and insurance.

‍While FHA loans will accept loan-to-value ratios of as high as 96.5%, you will pay higher interest rates. The good news is that it’s possible to reduce this ratio by:

  • Making a larger down payment
  • Shopping for a more affordable property

Personal Financial Health

Your financial history plays a significant role in establishing your mortgage rates. Factors that affect your borrowing capabilities are your:

  • Credit score
  • Debt-to-income (DTI) ratio
  • LTV Ratio

Though FHA mortgage loans accept a minimum credit score of as low as 580, lenders prefer borrowers with a responsible spending history. If you have borrowed and repaid loans in the past, lenders will consider you less risky to insure. The same principle applies to your DTI ratio, which indicates your ability to manage a loan. Some lenders will consider borrowers with a DTI ratio of up to 50%, though most prefer a percentage no higher than 43.

Down Payment Amount

FHA mortgages allow borrowers to make a down payment as low as 3.5%. While a low down payment reduces the initial expense, it increases the interest on the loan.

‍Unlike a conventional mortgage, which waives PMI if a homebuyer makes a down payment of 20% or higher, FHA loan borrowers have no choice but to pay mortgage insurance premiums. Albeit, homebuyers can reduce their interest after 11 years if they make at least a 10% down payment. Otherwise, borrowers can make lower interest payments by refinancing their loans.

Loan Term Structure

Fixed FHA loans are available in two terms – a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage. Overall, shorter loan terms have lower interest rates and higher payments.

‍While fixed-rate mortgage products keep interest rates predictable, they can be expensive for some. Some borrowers opt for an FHA ARM (adjustable-rate mortgage), which initially keeps mortgage interest rates low. However, ARM rates can increase depending on how the housing market performs. To avoid costly rates, borrowers should consider an FHA ARM for short-term stays between 5 and 10 years.

Borrowing Amount 

How much you borrow can also influence the interest rate. Borrowing more money than you can afford poses a high risk for lenders. As such, lenders funding high-cost properties will increase their interest rates.

‍You can calculate the total by adding the property price and closing costs and then subtracting the down payment. The higher this number, the higher the interest rate.

Discount Points

Discount points are pre-paid transactions that lower the overall interest. By paying discount points upon closing, you can reduce the interest on your loan by 0.25%. One discount point equals 1% of the cost of your mortgage.

How to Calculate FHA Loan Interest Rates

According to Bankrate’s latest survey of mortgage lenders, the national average interest rate for a 30-year FHA mortgage is 6.96%, and the national average interest rate for a 30-year fixed refinance is 7.05%. 

‍A slight alteration of a decimal point in the interest rate can trigger significant fluctuations in your monthly mortgage payments. To view the difference, use the Wesley Mortgage online loan calculator to get an idea of your monthly payments and amortization schedule.

‍Use the mortgage calculator to estimate what your monthly payments on an FHA loan will be based on different interest rates. This calculator provides customized data based on the details you provide. It also accounts for the mortgage amount, term period, insurance, and taxes. 

FHA Loan Rates vs. Conventional Loan Rates

FHA loan interest rates are typically lower than conventional loan rates. Because FHA loans are government-backed by the Federal Housing Administration, FHA lenders are better protected against risky borrowers. Thus, they can afford to charge lower rates compared to conventional loans‍. The FHA also allows for lower down payments than conventional loans, which can make it more attractive to first-time homebuyers. In addition, savings accounts can help accrue amounts needed for down payments and closing costs.

‍However, what will most impact your final rate is mortgage insurance. Both mortgage loans (FHA and conventional) charge mortgage insurance under different terms. For example, private mortgage insurance on a conventional loan can run up to 2.25% of the borrowing amount, whereas a mortgage insurance premium will cap at 1.05%. While you only have to pay PMI until your LTV ratio hits 80%, FHA mortgage insurance lasts for the life of the loan.

‍Hence, how PMI and MIP affect interest rates will depend on an individual’s financial health and down payments. You might consider refinancing your FHA loan into a conventional mortgage if you achieve at least 20% equity and a credit score of above 620.

Questions to Ask When Considering an FHA Loan Interest Rate

Do FHA loans have lower interest rates?

Though FHA loan requirements are lenient compared to conventional counterparts, interest rates are not lower. Credit scores have the most significant impact on today’s FHA mortgage rates. The higher your credit score, the lower your interest.

‍Interest might vary depending on whether you take out a 15 or 30-year FHA loan.

Do FHA loan rates vary between different lenders?

Indeed, different lenders have varying mortgage rates, closing costs, and origination fees. The best way to identify the cheapest rates is to compare different lenders. You can compare current FHA rates with mortgage calculators and other online tools.

Are fixed FHA loans cheaper than adjustable-rate loans?

It depends. Suppose you are applying for a 30-year fixed loan. Your interest rate will remain the same throughout the loan’s life, making it predictable. However, it isn’t more affordable than adjustable-rate loans.

‍On the other hand, FHA ARMs have much lower rates at the onset. These rates fluctuate according to market performance and almost always grow more expensive than 30-year fixed-rate loans.

Can you lower your FHA loan rate?

Yes, you can reduce your mortgage loan in these simple steps.

  • Improve your credit score: Don’t settle for minimum lending requirements. While you can qualify for an FHA loan with a score of as low as 580, aim to apply with a score of at least 600. Adding a few points to your credit score can secure a better interest rate. One way to improve your rating is to fulfill debt payments on your existing credit card or review your credit report. ‍
  • Consider a more affordable property: If your LTV ratio increases your rates, consider buying a less expensive home. ‍
  • Compare lenders: No two lenders make identical offers. As a rule of thumb, always consult with at least three lenders before you take out an FHA mortgage loan.

Are FHA interest rates and APR different?

Lenders charge an interest rate for borrowing money on your behalf. An annual percentage rate (APR) allows individuals to calculate the cost of borrowing because it considers all costs of your loan. An APR is a helpful tool for comparing rates and mortgage insurance between lenders.


FHA loans have lenient requirements that allow individuals with bad credit to secure a mortgage. Factors such as your financial history, the economy, and the housing market can affect interest rates and final costs.

To compare FHA mortgage rates online, consult with the experts at Wesley Mortgage. Visit our website for more helpful homeownership resources, or call us and speak with our staff to learn more about applying for an FHA loan.

‍We have a team of experienced loan experts who will devote their time to understanding your individual needs. We will provide you with a comprehensive overview of the different types of FHA loan options available and help determine which one is best suited for you. Our staff is here to provide you with the information you need to make the best decision for your financial situation. 

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