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Many would-be home-buyers worry that they've missed the most affordable time to buy a home. Admittedly, mortgage rates have risen sharply since early 2013, but in many cases, certain special types of mortgages still offer bargains. In particular, Federal Housing Administration mortgage rates are often lower, and the loans themselves have some other attractive features that can be of interest to homeowners. But low FHA mortgage rates also come with some catches. Let's take a closer look at FHA mortgages and how you can decide whether they make sense for you.

The basics of an FHA mortgage

The Federal Housing Administration is a government agency that insures mortgage loans, and the benefits of the loans that it insures go well beyond the lower rates that most banks offer on FHA loans. The feature of FHA loans that's most attractive to many first-time home-buyers is that only small down payments are required to qualify, with many borrowers qualifying to put down just 3.5% of the loan amount. In addition, many of the closing costs and other loan fees that most loans require you to pay separately can be included within the outstanding principal of an FHA-insured loan. Credit history requirements for FHA mortgages are also less strict than those of most mortgages, making FHA loans more readily available to those with questionable credit events, including foreclosures or bankruptcies.

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The mechanics of an FHA mortgage are somewhat confusing to some home buyers. The FHA doesn't make loans itself, but it provides insurance to financial institutions on its approved list of lenders under the program. Because of the insurance protection, many FHA-approved lenders offer lower FHA mortgage rates than borrowers under other types of loans have to pay. Currently, discounts of one-eighth to one-quarter of a percentage point are fairly common, and under certain circumstances, you might be able to get even larger savings.

What you have to pay to get low FHA mortgage rates

Although the FHA program is designed to help those who wouldn't otherwise be able to get conventional mortgage financing, favorable FHA mortgage rates come at a price. Specifically, borrowers have to pay an upfront fee of 1.75% in order to obtain the FHA's mortgage insurance on their loan.

In addition, FHA borrowers have to pay annual mortgage insurance fees based on the balance of their loan and the home's value compared to the outstanding principal. For new 30-year mortgage loans of $625,500 or less, annual rates of 1.35% apply for loans of more than 95% of the value of the home, while a slightly lower 1.3% annual premium is charged for loan-to-value ratios of less than 95%. The rates climb to 1.55% and 1.5%, respectively, for loans above $625,500. Lower rates for 15-year loans apply, with smaller loans seeing maximum annual fees of 0.7% and eventually phasing out entirely once loan-to-value ratios fall below 78%.

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Finally, even though FHA mortgages are more lenient than conventional mortgages, there are still limits to how bad your credit can be. Minimum FICO scores have been coming down in recent years, but FHA still requires 10% down payments if your FICO score is below 580. That effectively prevents many first-time home-buyers from getting financing, as it almost triples the minimum down payment available for those with slightly better credit. Moreover, some lenders are reluctant to make FHA loans despite the insurance, although the trend in this area has been toward more lax standards.

Check all your options

All in all, the trade-offs involved in getting favorable FHA mortgage rates aren't always worth it if you have the credit history to afford conventional financing. Even with the added flexibility of minimizing a down payment, the extensive insurance payments -- both upfront and ongoing -- often outweigh the minimal rate savings you'll get compared to regular financing sources.

As a result, FHA mortgage rates aren't usually the deciding factor in determining whether that form of financing is right for you. Instead, most home buyers choose FHA loans when they need the smallest down payment they can find. In that case, paying up in fees is usually worth it -- and any savings from FHA mortgage rates are just an added bonus.