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FHA Interest Rates and Comparing Loans

Posted in Discussions by thotrther on the May 25th, 2012

FHA loans have soared in popularity, often being used at 8- or 10-fold the frequency of just a few years ago. They’re not only among the lowest down payment programs and the most credit tolerant, they’re often a pretty good value for a home buyer. Calculating the effective cost of an FHA loan is really looking at the three parts. There is a financed, but nonetheless up-front expense. This is the up-front mortgage insurance (UFMIP). On a monthly basis, you see the interest rate and the monthly mortgage insurance premium (MIP) impacting the payment.

Because FHA loans include both these up-front and long-term components to the cost, it makes sense to use an FHA mortgage calculator that looks at the long-term cost. If you are only in a home for one year, the entirety of that that UFMIP is averaged over only 12 months. On the other hand, if you are in the home for a longer period of time, the low rate and lower MIP v. PMI (the conventional loan equivalent) can make the FHA loan a better value.

By comparing a few loan options, you can have relative certainty that you are making a good financial decision. Make sure that you are using current FHA MIP rates and today’s FHA interest rates. If you use a good comparison, it’s fairly easy to see which loan wins the FHA vs. Conventional comparison.

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