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An FHA loan is a mortgage insured by the Federal Housing Administration that helps people with low to moderate incomes achieve the dream of homeownership. The government does not loan homebuyers money. Instead it guarantees mortgages private lenders issue so these lenders can offer loans with lower down payment and credit score requirements than many conventional loans. As result, homebuyers who do not qualify for a conventional mortgage may qualify for an FHA loan.

The government guarantee also helps lenders offer interest rates on FHA loans that can be competitive with the interest rates of conventional loans. It is important to understand that an FHA loan with a lower interest rate is not necessarily "cheaper" than a conventional loan with a higher interest rate. That's because the total cost of a mortgage usually includes more than just interest payments. Mortgages can come with closing cost fees and charges you may be required to pay. These broader costs are usually expressed in the annual percentage rate of a mortgage.

Another factor that affects the interest rate you will pay on an FHA loan is your credit score. Many times, lenders will charge people with lower credit scores a higher interest rate. And interest rates on FHA loans can vary from lender to lender, as they can for every type of mortgage. That's why it is important to take your time and shop for your best mortgage rate.

Beyond interest rate. Mortgage insurance premiums and FHA loans

When you are considering an FHA loan, you should consider the cost of the mortgage insurance premiums you will be required to pay. Every FHA loan comes with an upfront mortgage insurance premium equal to 1.75% of the purchase price of the house. For a house that costs $250,000 that means you will pay an upfront fee of $4,375. You have to pay this fee regardless of the size of the down payment you make.

You also have to pay ongoing mortgage insurance premiums with an FHA loan and you may have to pay these premiums for the full life of the loan. These requirements are different than the requirements for buying private mortgage insurance (PMI) with a conventional loan. When you make a down payment of at least 20% on a conventional loan, you do not need to buy private mortgage insurance. Unlike FHA loans, there is also no upfront mortgage insurance fee for conventional loans. And you can stop paying for private mortgage insurance once you have 20% equity in your home.

Current FHA interest rates from Freedom Mortgage

It's not always easy to understand mortgage offers and how much they cost. If you have questions about FHA loans, please reach out to our knowledgeable Loan Advisors by calling 877-220-5533. We'll be happy to answer your questions about FHA loans and talk about the best interest rates we can offer based on your financial goals.

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