FHA Interest Rates
Many believe that there will be an increase in interest rates in 2010. The question that most have isn’t “if”, but “when”. A number of economists and news sources have predicted that a significant increase in FHA interest rates will happen within the next few months, while others suggest that it will not happen until the fall.
What Are Interest Rates Going To Do?
Aside from the general agreement that “they’ll probably go up”, no one seems to know for sure. We are now into the fourth year of the housing crisis and it is hard to see an end. In his recent news article, Trey Bowden said it best:
The questions on most homeowners’ minds are: “When will we see an end to the current housing crisis?” “How much longer will lenders remain skeptical?” “What are interest rates going to do?” “Is the housing market going to show signs of loosening up this year?” “Even with the federal tax credit, is it time to buy a new home?”
How Does The Interest Rate Affect My Loan?
Simply put, the higher the interest rate, the higher your monthly payment will be. Therefore, the amount that you can qualify for to buy a house will be lower.
FHA considers a borrower’s income adequate for a loan if the proposed total mortgage payment does not exceed 31% of gross stable monthly income.
With that being said, consider the following example:
Assume that the average household income is about $50,000 per year (or 4,166.67 per month) and the total amount of your other debt does not affect the 31% FHA housing ratio.
To fall within traditional FHA debt-to-income guidelines (31%), your total monthly payment can not exceed $1,291.67 (4,166.67 * 31%).
For the purposes of this example (using current mortgage insurance premium requirements), we’ll say that you are putting 3.5% down and your total monthly taxes, insurance payments are $150.00.
Under these circumstances the approximate results are:
- 5.0% FHA Interest Rate = $200,000 purchase price
- 5.5% FHA Interest Rate = $190,000 purchase price
- 6.0% FHA Interest Rate = $181,000 purchase price
- 6.5% FHA Interest Rate = $171,000 purchase price
FHA Interest Rate for Today
In the top, right corner of this site you’ll find the current US average mortgage rates.
You can use this tool to see what are the current interest rates and to see what the recent interest rate trend has been.
If you are planning on buying a home in 2010, I recommend that you frequently visit the site to check on current interest rates.
