When you’re buying a home, expect the unexpected. Things work out — just never exactly in the way you planned.
Just ask buyers who thought they’d get an FHA mortgage.
Starting about a year ago, FHA mortgage rates rose unexpectedly and then never came down so that, today, the typical interest rate on an FHA mortgage is higher than for a comparable loan via two other government-backed groups — Fannie Mae and Freddie Mac.
This is weird because FHA mortgages are insured against loss which means they’re less risky to a lender than a loan backed by Fannie Mae or Freddie Mac.
Lower risk should mean a lower interest rate — but that’s not what’s happening.
According to mortgage software company Ellie Mae, home buyers with FHA mortgages are paying higher interest rates as compared to homeowners with other loan types. And, that’s unexpected.
Historically, FHA interest rates have beat conventional rates by a quarter-percentage point or more. Today, not so much.
FHAs are no longer the de facto choice for low-down payment loans.
With interest rates flipped, FHA loans will tend to suit buyers with average credit ratings; and, buyers of multi-unit homes. Conventional loans will likely fit better for buyers with higher credit scores; and, buyers of condos and standalone homes.
Interest rates can change unexpectedly, though, so it’s best to stay flexible. You won’t want to choose a mortgage before you’ve chosen a house.
Are you a first time home buyer?
Let us know if you’ve done this before - whether you’re a seasoned pro or buying for the first time. We’ll share the perfect information with you as you need it.
Debt-to-income ratio is the basis and building block for almost every mortgage approval.