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How Are FHA Mortgage Rates Calculated?

By Jim Micheals

The FHA Mortgage

The Federal Housing Administration (FHA) insured loan is provided by FHA-approved lenders and is backed or insured by the FHA. FHA mortgages are popular among first-time homebuyers since the requirements for credit approval are much less strict than with other loans. People with little or no credit or who have made a few mistakes with their credit can usually get approved without much hassle. FHA loans are also assumable, which means that when the borrower sells the house, the new owner can take on the original loan.

FHA Mortgage Insurance

Your FHA mortgage rates will affected by the higher-than-average insurance rate (which replaces the PMI or private mortgage insurance which is factored into a conventional loan). FHA mortgage insurance is based on 1.5% of the home’s value, due upfront, although this amount can often be financed and included into the monthly payments. This insurance is designed to help protect the lender in case you default on your mortgage. If you make a down payment of 20% or more, this insurance is waived, but first-time homebuyers can rarely afford to put that much down.

How FHA Mortgage Rates Are Calculated

Just like a conventional loan, FHA mortgage rates are based on length of loan, interest, loan amount, tax, and insurance. Obviously, the longer the loan, the higher your FHA mortgage rates will be, but the less you will end up paying in interest. Tax depends on the current property taxes where you live. Interest also fluctuates but tends not to differ significantly from the interest on conventional loans. As an example of what you can expect in your FHA mortgage rates, let’s say you are considering a 30-year mortgage at a 5% interest rate on a home valued at $100,000. You put 5% down at $5,000. Your principal would be $95,000. That equates to a monthly principal and interest payment of $509.98. Add to that the tax and insurance, and you have your total monthly payment. For a more specific calculation of your FHA mortgage rate, use one of the many FHA mortgage calculators available online.

Related posts:

1. What Is PMI For A Conventional Home Mortgage Loan?
2. Are Mortgage Rates Calculated The Same As Home Equity Loans?
3. Are Conventional Loans Or FHA The Lowest Mortgage Interest Rates?
4. What Are The Qualifications For A First Time Buyers Mortgage Loan?
5. How Do Conventional Home Loans Compare To FHA Loans?