FHA Interest Rates
The FHA Loan Rates continue to trade within just a narrow margin relative to conforming. With credit scores driving the conventional mortgage rate and the associated PMI, here’s a comparison of how the FHA vs. Conventional dynamic changes based on credit score.
Today’s example uses a $300,000 home at 5% down. The FHA mortgage rate won’t change, nor will the monthly mortgage insurance. Here’s a look at the data:
| FHA | 700 FICO | 680 FICO | |
| Base Loan Amount | $285,000 | $285,000 | $285,000 |
| FHA UFMIP (financed) | $4,988 | ||
| Loan Amount | $289,988 | $285,000 | $285,000 |
| LLPA Factor | 0.750% | 1.188% | |
| LLPA Cost | $ 2,137.50 | $ 3,385.80 | |
| Interest Rate | 4.875% | 4.750% | 4.750% |
| MI Factor | 0.500% | 0.940% | 1.200% |
| Principal & Interest | $1,534.64 | $1,486.69 | $1,486.69 |
| Monthly MI | $120.83 | $223.25 | $285.00 |
| Total Monthly Payment | $1,655.47 | $1,709.94 | $1,771.69 |
This isn’t abnormal. The FHA vs. Conventional comparison will typically yield a lower payment on the FHA loan.
The costs related to the loan over time are the incremental costs (either UFMIP or LLPA adjustment) plus any monthly mortgage insurance plus cumulative interest paid. Principal is not included under these calculations nor are any costs that do not vary based on loan selection.
| FHA | 700 FICO | 680 FICO | |
| Incremental Cost at Closing | $4,987.50 | $2,137.50 | $3,385.80 |
| Year 1 | $20,477 | $18,259 | $20,248 |
| Year 2 | $35,749 | $34,167 | $36,897 |
| Year 3 | $50,792 | $49,851 | $53,323 |
| Year 4 | $65,594 | $65,301 | $69,513 |
| Year 5 | $80,144 | $80,504 | $85,457 |
When we look at the total savings for FHA vs. Conventional using both FICO scores, the loan options begin to separate. At the time of closing, both conforming loan options are significantly less expensive than the FHA Up-Front Mortgage Insurance Premium.
In the beginning of Year 2, the FHA vs. Conventional winner for a 680 FICO score is the FHA mortgage.
For the period between years 2 and 5, for the 700 FICO, the conventional loan will outperform.
Should the FHA continue the moratorium on the risk-based up-front mortgage insurance premiums, it appears that the 700 FICO range is a tipping point for which loan, FHA or conventional, is better.
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