FHA Mortgage Rates Are Now Higher Than Conventional Ones
Home buyers are finding value in new construction homes with home supply up and builder confidence down through fourth straight months; an update on today’s mortgage rates; and, Ellie Mae reports FHA mortgage rates surpassing conventional rates for the first time.
Home Buyers Finding Value In New Construction
Home buyers shopping new construction this season may find builders more willing to negotiate on price, and amenities, in a home.
According to the National Association of Home Builders, the nation’s builders are less optimistic about the future of new home sales. The data comes from the trade group’s Housing Market Index, a market confidence survey published monthly.
April’s data shows a confidence reading of 69, down one from the month prior. And, while the reading is strong in historical context, it marks the fourth straight month of decline.
Builder confidence is waning.
The Housing Market Index is comprised of three separate data points. The first measures current new home sales. The second is a projection of sales for the next six months. And, the third quantifies how much buyer foot traffic is coming through model units, currently.
Each of the three measurements is worse since the New Year. Additionally, the U.S. Census Bureau reports that new homes are staying “For Sale” for longer periods of time.
The government group reports that New Home Supply, which is the amount of time it would take for buyers to buy all new homes listed for sale at the current home-buying pace, climbed to 5.9 months, an increase of more than one calendar month.
A reading of six months suggests a market in balance between buyers and sellers.
There’s nothing to suggest that today’s builders are in a panic about rapidly changing market conditions, but it’s clear that concerns have started to surface.
As a buyer, this information may be used to advantage. Declining builder confidence may help you gain leverage in your negotiations, either for lower prices or additional upgrades and amenities.
Today’s home builders may be more willing to deal.
Today’s Mortgage Rates
Mortgage rates across all loan types are moving lower this Monday morning.
- Conforming mortgages: Lower
- FHA mortgages: Lower
- VA mortgages: Lower
- USDA mortgages: Lower
- Jumbo mortgages: Lower
The actual mortgage rate you get from a lender will depend on your mortgage loan size, your credit score, and where you live.
Your choice in mortgage lenders matters, too, because rates vary from company to company; and, even a slight difference can effect your household budget.
Comparison shop your mortgage and talk with at least two loan officers before locking in your rate. Select your favored combination of service, rates, and cost.
Aggressive Mortgage Rates Quotes
FHA Mortgage Rates Now Exceed Rates For Conventional Loans
Mortgage borrowers are paying higher interest rates for FHA loans as compared to conventional ones for the first time in recorded history.
According to Ellie Mae, whose mortgage software suite touches more than three million loan applications annually, the average interest rate for an FHA loan hit 4.73 percent last month. This is the highest average rate for FHA loans since 2013 when Ellie Mae started tracking such data.
It also marks the first time that FHA mortgage rates exceeded conventional ones, and consumers should take note.
Traditionally, FHA loans are “cheap.” Over the last five years, their rates have trailed the rates on loans backed by Fannie Mae and Freddie Mac by seventeen basis points, on average; and, it’s not unusual to see spreads reaching 0.30 percentage points.
Today, the relationship is flipped.
The FHA loan is not the default low-down payment mortgage choice for buyers of homes anymore. There are other, less-expensive options.
For buyers with above-average credit buying single-family homes, conventional loans may be a better choice. 3% down payment loans such as HomeReady® and HomePossible®, save money as compared to the FHA’s low-down payment option. The Conventional 97 program is also an option.
FHA rates affect the calculus of doing an FHA-to-FHA refinance, too.
FHA-backed homeowners who relied on the simplicity of the FHA Streamline Refinance to get lower rates may now find it cheaper and better to refinance away from the FHA entirely. Conventional loans may offer better rates, cheaper mortgage insurance, and a better overall experience.
Plus, it’s a good way to stop paying FHA mortgage insurance.
There are situations when the FHA mortgage will be a fit. Two obvious examples are buyers of multi-unit homes; and buyers with credit that’s average or below average. FHA loans for house-hacking home buyers can also work well.
Talk with a loan officer about FHA loans and whether they’re a match for your mortgage needs. As FHA interest rates climb relative to rates for other loans, the advantages of going FHA diminish.