Many people are aware that FHA loans are actually approved through a private lender. Thus, there is not one standard rate for borrowers at any given time. This leads many of us to wonder how to get the lowest rate on an FHA loan. 

The rates are dependent upon the currrent typical loan rate and your individual qualifications as a borrower. Thus, you may get an FHA loan at 4.0 percent, while a friend might get the same loan a week later at 4.25 percent. 

Let's look at the two major factors and two minor factors that a private lender will use in order to determine your FHA loan rate.

Bank Funds Rate -

All FHA loans are dependent upon our country's current economic situation. The funds rate is the rate the banks use to borrow money from the Federal Reserve Bank and from each other. Typically, the funds rate is lower when the economy is not doing as well. The reason for this is that the Federal Reserve has often lowered this rate in order to stimulate the economy. 

Also, this funds rate is influenced by the current rate for a U.S. Treasury Bond. Currently, U.S. Treasury bonds have a negative yield - meaning a negative interest rate. The cost of mortgage-backed securities can also affect FHA loan interest rates. 

Savvy borrowers will go on the Freddie Mac website and other trusted websites that provide the current funds rate for the banks. When you know the funds rate, you can better evaluate the lender's baseline rate that they quote on their website. 

Your Borrower Profile -

You can't change the whole economy, but you can change your borrower profile and even choose a more favorable time to apply for your FHA loan. That is another way you can save yourself money and get a lower FHA loan rate. 

The most important aspects of your borrower profile include: 

Your Credit Score: People who get the very best current FHA loan rates are those who have credit scores over 760. Your credit score is most influenced by your payment history with credit accounts. But, there is often overlooked factor in people's credit scores - how much of your credit limits are currently being utilized. If you have a total of $3,500 in total credit lines extended to you, and you have borrowed most of it, you are considered less credit-worthy. Lenders prefer to lend to those who utilize less of their extended credit and will provide such borrowers lower interest rates. 

Your Debt-to-Income Ratio: Your DTI is your after-tax income divided by your debt payments each month. If you have a DTI lower than 36 percent, you will be able to get a lower FHA interest rate. If you are on the last few months of a major payment, like a student loan, the bank may not count the oayment in your DTI calculation. If you are above a DTI of 35 percent, consider getting some of the debt paid off before you apply for your FHA loan. 

The Points You May Pay in Advance -

Maybe the best explanation for points is that you are basically paying for some of the loan interest up front when you pay for points at closing. One point is equivalent to one percent of interest. This will also help you lower your interest rate. Sometimes, a lender may ask you to pay for points if your credit is a bit less than desireable. 

The Number of Years for Your Loan Term -

Many people choose a 30-year loan term for their mortgage. That is best for the banks because they can charge borrowers more interest. If you can make the slightly higher payments each month, you will benefit from choosing a 20-year loan term. That will save you a huge amount of interest payments over the life of the loan. It may not help you get a lower interest rate, although it might. Choosing a shorter loan term is one of the best ways to save money on your mortgage. 

For people who want to know how to get the lowest rate on an FHA loan, the answer is in knowing the bank funds rate, researching lenders' websites, making the very best of your borrower profile by focusing on paying bills on time and not being too extended in your credit lines. 

You also need to consider if paying for points can lower your rate. Choosing a shorter loan term will also at least save some of the interest costs over the life of the loan.