Mortgage Rate News

Right now, it can be difficult to get a home mortgage loan at a good interest rate. It can be hard to get a home mortgage loan at any rate. This is because mortgage lenders have changed their lending standards since the credit market crisis and the subprime lending crash. To get the best interest rate on a mortgage, you have to have a down payment of at least 5% (many are asking for between 10% and 20% now) and you have to have a very good credit score.

Unless you go with the FHA loan.

The FHA loan is one that is insured through the Federal Housing Administration. Here is what CNN Money reports about getting a loan insured by the FHA:

For lenders, income is the main factor in determining who qualifies for an FHA loan. The agency’s guidelines dictate that that buyers spend no more than 31% of their gross income on mortgage payments.

Lenders do look at buyers’ credit histories, but the interest rates that FHA borrowers pay aren’t actually based on their credit scores, as they are for most home buyers, according to Keith Gumbinger of HSH Associates, a publisher of mortgage loan information. Instead, FHA borrowers get the same interest rate that any conforming borrower with a good credit score would receive.

In recent years, the FHA loan had fallen out of favor because of the income requirements and the fact that a down payment was required. Zero down mortgages and lax lending standards allowed some home buyers to get into homes without any down payment at all — and sometimes with the mortgage payment taking up 40% to 50% of their monthly income. Now, of course, such loans aren’t even possible to get. And with mortgage lenders stepping up their standards, the FHA loan looks downright easy to obtain.

Even though the credit score requirement is not onerous with an FHA loan, there are still some standards: If you have a score below 500, you need a 10% down payment. And you should realize that there are fees and private mortgage insurance to buy with an FHA loan.