Federal Housing Administration, or FHA mortgage rates, are always among the best in the nation because of the volume of business that the government does within the real estate market of the United States. If you are looking for a new home anywhere in the country, the FHA can give you a leg up that no one else can. It is incredibly helpful to know the current FHA mortgage rates as well as how those rates will change over the rest of the year. Here are the basics about FHA mortgages today and the forecast for 2016.
What are the current FHA rates?
Currently, a 30 year fixed mortgage that is backed by the FHA can be had for a 3.5 percent interest rate. The current 15 year fixed mortgage rate is 3.125 percent.
What is the logic behind these rates?
FHA rates are always below the benchmark conventional loan rates because of the surety of the government. Benchmark loan rates are the most studied interest rates, because all other rates tend to move with them in a fairly predictable fashion. The Mortgage Bankers Association and Fannie Mae both have teams of analysts who study benchmark rates. If you see a general interest rate online that has no criteria next to it, you can assume that it is a rate for the benchmark criteria around the market. These criteria are for a conventional, conforming loan of 30 years at a fixed rate with a 20 percent down payment, no mortgage points paid at the beginning of the loan, and a credit score that is in the highest tier. High tier credit scores are scores that are above 740. The next tier down is above 700 and may be included in some benchmark quotes depending on the lending institution who is quoting you.
Conventional benchmark rates have been well below four percent for the majority of the past five years, and there is nothing in the cards that seem to be reversing these trends. The Federal Reserve sets the lending rate from the central bank to commercial banks, which in turn helps to set the mortgage rates that we all see on the Internet. The Federal Reserve has not said that it will raise its rates anytime soon, meaning that commercial banks do not have any reason to raise their rates in the near future. This alone will help the FHA interest rates stay relatively stable throughout the rest of 2016.
There is also a geographic element to the stability of the FHA loans. Fannie Mae and the Mortgage Banking Association base the numbers that they show you on national housing statistics, and these statistics are not uniform across the country. In March of 2016, the West gained seven percent in housing prices over February, while the rest of the country lost two percent. However, the West is so large a part of the pie that the national housing prices went up three percent in March over February. The FHA must be more particular when it considers its rates, because its rates may not be viable in one part of the country if they are set by a blanket reading of the housing statistics across all geographies.
What is the forecast for the rest of 2016 for FHA mortgage rates?
There is no hard and fast analysis that has been right over the past five years when trying to forecast interest rates. Everyone in the financial industry is basically trying to guess when the Federal Reserve will raise its rates up above the record lows that they have been at for the past half decade. All of them have been wrong, because the Fed has not raised rates very much at all. There is no mainstream analysis that can accurately predict this action of the Fed, because even the Fed says that it cannot predict when its own rates will rise. Although this Fed rate movement is the central aspect of what will affect FHA rates over the rest of 2016, it is not the only factor.
The other major factor that will go into changing FHA rates across the board is any significant change in the benchmark mortgage rate across all geographies, There does not seem to be any indication that this will occur. Some market analysts are predicting a bond market bubble that is so big that it will affect the real estate market, but they have been predicting this for the past three or four years. If you constantly say that it will be nighttime, eventually you will be right.
There is truly no reason to think that the market will change significantly over the rest of the year. Because the FHA is concerned mostly with low income and bad credit buyers, you can expect even less volatility in that market. The government of the United States and the Federal Reserve does not have the political leverage to leave the real estate markets completely to their own devices: If something goes wrong now, they get blamed. Perhaps if the rising minimum wage that is currently making its way through state governments is successful, the Fed will feel better about raising its basic banking rates. They will only have room to raise these rates if people believe and feel that the economy is getting better from the bottom up.
2 Point Highlight
The FHA must be more particular when it considers its rates, because its rates may not be viable in one part of the country if they are set by a blanket reading of the housing statistics across all geographies.
Perhaps if the rising minimum wage that is currently making its way through state governments is successful, the Fed will feel better about raising its basic banking rates.
