FHA Interest Rates, MIP, and Loan Comparisons
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.
It’s often helpful to look at an FHA vs. Conventional graph to get an idea of how the two loans compare. FHA has a 1% UFMIP expense that occurs in the first year. This makes the FHA loan more expensive, in most cases, on day 1. On the flip side, FHA loans tend to have a lower mortgage insurance factor than many conventional loans when your credit score is less than perfect. For most people, the difference between the two loans is not the same on day 1, year 1, and year 10. In some cases, the FHA loan is worse on day 1, but better by year 5. In some cases, a conventional loan is better for the entire term. Using your own loan quotes, run a quick comparison–it will help you see which is the better loan option.
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.
This entry was posted on Tuesday, August 30th, 2011 at 3:27 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.