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Mortgage Rate ReportTuesday, October 24, 2017
Mortgage rates continue to resist gravity as well as the Federal Reserve's actions and remained stable for another week. Although the Federal Reserve left interest rates unchanged at its September meeting, its move to start trimming its balance sheet by selling U.S. treasuries and mortgage-backed securities as well as its signaling of a rate hike before the end of the year pushed mortgage rates moderately higher across the board in mid-September. Following this initial uptick, however, mortgage rates have been relatively steady for over a month. Mortgage rate stability continued this week despite the Federal Reserve releasing the minutes from its September meeting last week that all but guaranteed an interest rate hike before the end of the year.
In its September statement, the Fed highlighted labor market strength, improving household spending and growing business investment as offsets to moderate inflation in deciding to keep the federal funds rate unchanged. Although the Fed kept the federal funds rate steady at 1.000% to 1.250%, the decision to start its previously announced balance sheet shrinking program in October moved treasury yields higher and mortgage rates followed suit, with most programs experiencing a 0.125% increase in rates.
The minutes from the September meeting, released last week, show that Fed members continue to debate the impact of low inflation on the economy as well as the projected trajectory of inflation in the future. While some Fed board members pointed to low inflation as a reason to leave rates unchanged, others focused on projected inflation growth and multiple positive economic factors to support a near term interest rate hike. The more aggressive perspective seems to have won the debate and we are poised for the Fed to raise rates in December, as many industry analysts have predicted.
Fortunately for borrowers, mortgage rates have been relatively unresponsive to the Fed's intentions and were steady for another week. The interest rate for a 30 year fixed rate mortgage remained unchanged at 3.750% while the interest rate for a 15 year mortgage held at 3.000%. The interest rate on a 5/1 adjustable rate mortgage (ARM) stayed put at 3.000%, remaining attractive to borrowers seeking shorter-term mortgage programs willing to take on the risk of an ARM. FHA mortgage rates were flat at 3.250%, matching VA mortgage rates which also remained at 3.250%, with both programs appealing to home buyers focused on low or no down payment loan options. Keeping with the broader market trend, non-owner occupied mortgage rates remained at 4.000%. Bucking the trend in a positive direction, jumbo mortgage rates dipped 0.125% to 3.750%.
Although the Fed did not change rates, its economic outlook or forecast for future rate hikes in its September meeting, its actions and signals increased market uncertainty which usually leads to higher mortgage rates. Four weeks of relatively stable mortgage rates have returned a sense of calm to the mortgage market and interest rates remain near historical lows. With the Fed meeting minutes reinforcing the expectation for a rate hike expected before year end as well as three more anticipated hikes in 2018, prospective borrowers looking to buy a home or refinance their mortgage may be able to lock in a lower interest rate by acting sooner rather than later, before mortgage rates rise again, potentially at an accelerated pace.
Because mortgage rates change daily, we continue to actively monitor the mortgage market for changes. Borrowers should check the FREEandCLEAR mortgage rate tables regularly to review customized, updated mortgage rates for lenders in their area. Our rate tables are free to use and require no personal information.
Why Select an FHA Mortgage
Low Down Payment.
The main benefit of the FHA mortgage program is that it enables borrowers to buy a home with a down payment as low as 3.5% of the property purchase price. This compares to 10% - 20% down payment required to buy a home with most conventional mortgage programs. Borrowers can also combine the FHA program with a down payment assistance program or closing cost grant to further reduce the personal financial contribution they are required to make to buy a home. The FHA program charges borrowers additional up-front and ongoing fees but makes home ownership more attainable, especially for low-to-moderate income borrowers. The low down payment requirement also makes the FHA program an attractive financing option for first-time buyers.
Low Interest Rate.
The interest rate for an FHA mortgage is typically .125% - .500% lower than the current interest rate on a conventional loan or other low / no down payment mortgage programs. This is because borrowers are required to pay an ongoing FHA Mortgage Insurance Premium (MIP) which is similar to private mortgage insurance and protects the lender against default or foreclosure. The FHA MIP is an extra ongoing cost for borrowers but the insurance enables lenders to offer lower rates on FHA loans. Borrowers should consider both the interest rate and FHA MIP when evaluating the total cost of the loan.
Flexible Borrower Qualification Requirements.
The borrower qualification requirements for the FHA mortgage program are more flexible than for other low or no down payment mortgage programs. For example, the program typically requires that borrowers have a minimum credit score of only 580 and there are cases where a borrower can obtain an FHA mortgage with a lower score. Additionally, lenders have more discretion when applying debt-to-income ratios to determine what size mortgage borrowers can afford. The higher the debt-to-income ratio, the larger the mortgage the borrower can afford.
Available to All Borrowers.
The FHA mortgage program is available to all borrowers that qualify. There are no borrower income limits although there are limits on loan amounts available through the program. Additionally, the program applies to all eligible properties, up to four units in size, as long as the borrower occupies the property.
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More FREEandCLEAR Mortgage Resources
Use our FHA Mortgage Qualification Calculator to determine what size FHA loan you can afford as well as the required up-front and ongoing FHA Mortgage Insurance Premium
Review our comprehensive overview of the FHA Mortgage Program including borrower eligibility requirements
We provide a thorough summary of multiple mortgage programs that enable borrowers to buy a home with little or no down payment
Ask the FREEandCLEAR Mortgage Expert about the FHA mortgage program or any mortgage topic and receive an insightful response within 24 hours