FHA Mortgage Rates Just Dropped Below 6% – But There’s a Catch

Interest rates on Federal Housing Administration loans fell to 5.99% today, according to Zillow data provided to U.S. News, dipping below the crucial 6% benchmark that many prospective buyers have been waiting for before entering the market.

In fact, the majority of homebuyers (62%) are waiting for mortgage rates to fall before buying a home in 2026, per a May U.S. News survey – and among them, about a fifth (19%) are waiting for rates to dip below that 6% threshold.

While mortgage rates are an important way to measure a loan’s repayment costs, they’re not the only factor to consider. FHA loan interest rates may be lower, but that benefit can be offset by other fees unique to this type of loan.

FHA mortgages can carry lower interest rates than conventional loans, especially for borrowers with less-than-stellar credit.

For one, lenders can offer better pricing since the mortgages are insured by the Federal Housing Administration. If a borrower defaults on the loan, the government agency covers a portion of the losses. In short, lower risk to the lender equals lower rates for the borrower.

Additionally, FHA loans aren’t bound by conventional loans’ loan-level price adjustments, which may result in higher fees for borrowers with credit scores under 740, depending on their down payment. For this reason, FHA loan rates can be lower than conventional loan rates for borrowers with fair or average credit.

A mortgage’s interest rate is just one aspect of the loan’s cost. For a more comprehensive cost of borrowing, look to the annual percentage rate, or APR. The mortgage APR includes the interest rate as well as fees.

As a baseline, FHA loans typically come with higher APRs than conventional loans. That’s because FHA loans require an up-front mortgage insurance premium payment, which amounts to 175 basis points, or 1.75% of the loan amount.

For example, on a $300,000 home loan, the up-front MIP amounts to $5,250.

On the plus side, the MIP can be rolled into the loan amount. That’s good for first-time homebuyers who may not have significant cash to bring to the closing table. However, it will increase the principal balance of the loan, and the borrower will ultimately be charged interest on top of that fee.

In addition to the up-front mortgage insurance premium, FHA loans also require annual MIPs, which are divided by 12 and added to your monthly payment. The exact cost of annual mortgage insurance premiums varies based on the down payment amount and the duration of the loan.

For example, let’s say you put down 5% on a 30-year fixed FHA loan. In that case, your annual MIP would be 50 basis points or 0.5% of the loan amount. On a $300,000 home loan, that’s $1,500 yearly, which adds $125 to your monthly mortgage payment.

You can find the current FHA mortgage insurance premiums as of 2026 on the HUD website or in the table below.

Keep in mind that if you put less than 20% down on a conventional loan, you’ll also need to pay private mortgage insurance, or PMI. Whereas FHA MIPs are calculated based on the matrix above, conventional loan PMI is dependent on your credit score and down payment.

The big difference between FHA mortgage insurance and PMI on a conventional loan is that FHA may require you to carry mortgage insurance for the duration of the loan, depending on your repayment term and down payment. With PMI, you can get rid of it once you reach a loan-to-value ratio of 80% or 20% equity in your home.

Shopping around for the cheapest home loan for your unique situation takes a bit of research. If you’re between an FHA versus a conventional loan, ask your mortgage lender to pull quotes for both options.

When shopping between two lenders or even just two different types of loans, it helps to compare loan estimates. Your loan estimate gives you all sorts of information about the cost of borrowing, making it easier to compare prices. Check out this sample loan estimate from the Consumer Financial Protection Bureau to get an idea of what to expect.

Compare mortgage offers by looking at not just the interest rate, but also the APR, origination charges and discount points, if applicable. You should consider how long you plan to stay in the home before moving or refinancing, since it may not be worth it to pay for mortgage discount points to lower your interest rate.

Finally, choosing the right home loan for you can be a daunting task. If you need guidance from a third party, reach out to a financial advisor. Unlike a mortgage loan officer or broker who would benefit financially from your decision to take out a mortgage, a financial advisor may give you a more holistic view of how much house you can afford.