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FHA Mortgage Rates

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									                                    FHA Mortgage Rates


The FHA does not set loan rates, because they don’t loan money. The FHA purchases loans from
commercial lenders that meet FHA standards. Those standards include the acceptability of the buyer,
the appraisal of the property and certain properties of the loan’s financial structure. That is as close as
they come to setting rates.
An FHA loan has a very low down payment requirement of 3%. They expect fixed rate loans to have
rates based on the current market and the borrower’s credit rating – as would any commercial lender.
The fact that your loan will be FHA approved and insured may result in a slight reduction in interest
rates.
FHA loans also have insurance costs to the lender, as do all mortgages with a down payment of less
than 20%. In the case of the FHA, however, those insurance payments are made to the agency instead
of a commercial insurance broker. On an FHA loan the borrower will be charged an insurance
premium of 1.5% of the mortgage amount and the yearly payments thereafter will be half a percent of
the mortgage value.
FHA also allows the financing of closing costs. Your mortgage loan will include the closing costs and
will be folded into the monthly payments and amortized over thirty years. They also have limits on
some of those closing costs: the fee for credit reports must be the actual cost; so too with legal fees;
inspection fees are limited to $200 and the loan origination fee can be a maximum of 1% of the loan
amount.
For adjustable rate mortgages, the only index acceptable to the FHA is the one year Treasury bill
interest rate. Annual increases are capped at 1% and the maximum interest rate can be no more than
5% of the original interest rate.
There are also “hybrid” mortgages that have initial low interest periods of 3; 5; 7; or 10 years before
the rated adjust. In those situations, the loan with the 3 year initial period has the same restrictions as
the one year ARM described above. In the case of the 5,7 and 10 year ARMs the yearly maximum
increase is 2% and the interest rate cap is 6% over the original rate.

								
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