How do I Choose the Best FHA Mortgage Rate?

The Federal Housing Authority (FHA) offers several different types of mortgage rates. To choose the best FHA mortgage rate, you should take several things into consideration — the monthly payment you can afford, your current and expected future income, whether the house needs repairs or updates, and the number of years you plan to keep the mortgage.

Not everyone is qualified for an FHA mortgage rate. You must meet the minimum credit and income to debt ratio requirements, and FHA loans may also require a down payment. There are limitations on the amount that can be loaned per area and the number of dwellings on the property.

There are basically three types of FHA mortgages: fixed rate mortgages, adjustable rate mortgages (ARMs), and rehabilitation loans. Each has different interest rates, terms, and conditions. You may qualify for more than one type of loan, but the best loan will be the one that is least expensive for the time that you intend to hold it.

The first type of FHA mortgage rate is the fixed rate mortgage, called the section 203b insured mortgage. Like other fixed rate loans, the interest rate remains the same during the life of the loan, which is typically 15 to 30 years. The interest rate is based on the prevailing rate and length of the loan. There may be other contributing factors which effect the interest rate, depending on the lender.

The section 203b insured mortgage is usually the least expensive loan with the lowest interest rate. If you plan to keep the property until you have paid it off, it is probably the least expensive. If you plan on selling the property within a few years, you might consider an ARM.

An ARM mortgage typically has a lower monthly payment for the first three, five, or seven years, depending on the terms of the loan. After that period, the interest rate will change according to the prevailing rates. Individuals who intend to sell the property within a few years often choose an ARM because of the lower initial payments.

Even if you do plan on selling the property after a few years, you should probably only chose an ARM if you can afford to keep the property for the entire life of the loan. There is no guarantee that the property will sell. If you believe that your income could decrease significantly over the next few years and that you could not afford an increase in monthly payments, you should probably not chose an ARM.

If the property you desire requires significant improvements, you may need to get a 203k rehabilitation loan. This mortgage is for more than the purchase price of the house. It includes the estimated amount that is needed to pay for improvements as well. The total mortgage amount must still fall within the mortgage limits for the area, and there may also be a minimum loan amount required for this type of FHA mortgage rate.

Certain types of FHA loans are only available to individuals that meet special criteria. For instance, there are programs for disaster victims and for individuals purchasing property on Indian reservations or other restricted lands. You may need to contact an FHA-approved lender to find out if you qualify for these special loan programs.