FHA Share of New-Home Mortgage Applications Climbs to 35% as Rates Pressure Buyers

FHA loans accounted for 35% of mortgage applications to purchase newly built homes in August, the highest share in three months, as elevated borrowing costs continued to squeeze affordability and overall new-home mortgage demand fell to its lowest level of 2026.

Mortgage applications for new-home purchases declined 6% from July and 5.5% from August 2025, according to the Mortgage Bankers Association’s latest Builder Application Survey. August marked the fifth consecutive month in which application volume declined from a year earlier.

The shift toward Federal Housing Administration financing is particularly notable because it came as overall demand weakened.

“More homebuyers turned to FHA loans in response to higher mortgage rates,” MBA Vice President and Deputy Chief Economist Joel Kan said.

FHA gains share as conventional financing slips

FHA loans represented 35% of new-home purchase applications in August, up from 34.6% in July and 34.2% in June. FHA’s share had reached 35.6% in May.

MBA’s August product mix was:

• Conventional: 49.5%

• FHA: 35.0%

• VA: 13.9%

• USDA/RHS: 1.7%

Using MBA’s rounded figures, government-backed FHA, VA and USDA loans collectively represented about 50.6% of applications — slightly more than the conventional share.

That financing mix illustrates how affordability pressure is influencing not just whether consumers buy, but how they finance new construction.

FHA-insured mortgages can allow down payments as low as 3.5% for eligible borrowers and generally offer more flexible credit qualification than many conventional products, according to the Department of Housing and Urban Development. Those features can reduce the upfront barrier for buyers who have sufficient income to support a mortgage but less cash available for a larger down payment.

There is a tradeoff. Most FHA single-family mortgages require an upfront mortgage insurance premium as well as an annual premium typically collected through monthly payments, meaning borrowers still need to compare the full cost of FHA and conventional financing rather than focusing only on the down payment.

Mortgage rates remain an affordability headwind

Borrowing costs have become even more challenging since the August application period.

Freddie Mac reported that its benchmark 30-year fixed mortgage averaged 6.95% as of Sept. 17, up from 6.76% one week earlier and 6.26% a year earlier. Freddie Mac’s survey reflects qualifying conventional purchase applications rather than FHA rates specifically, but it provides a broad measure of the interest-rate environment facing homebuyers.

Higher rates can materially change purchasing power because they increase the monthly principal-and-interest payment associated with the same loan balance. For buyers already constrained by down-payment savings or debt-to-income limits, that can increase the appeal of financing programs designed to offer lower upfront barriers.

The average loan size for a newly built home in MBA’s survey also edged lower in August, falling to $373,194 from $374,438 in July.

Builders are increasingly using incentives to keep buyers engaged

The financing shift comes as home builders themselves are taking more aggressive steps to support demand.

The National Association of Home Builders/Wells Fargo Housing Market Index fell three points to 32 in September, its lowest reading since September 2025. NAHB said higher mortgage rates were among the factors weighing on buyer traffic.

Thirty-eight percent of builders reported cutting prices in September, up from 35% in August, while 66% said they were using sales incentives. The average reported price reduction remained 6%.

Those incentives can take multiple forms across the market, including price reductions and financing-related concessions. Combined with the growing FHA share, the data point to a new-home market in which both builders and buyers are adjusting to persistent affordability constraints rather than waiting for them to disappear.

New-home sales estimate rises despite weaker applications

MBA estimated that new single-family home sales ran at a seasonally adjusted annual rate of 664,000 in August, up 2.6% from its July estimate of 647,000.

Despite the monthly increase, MBA said the August pace remained about 9% below the year-earlier level. On an unadjusted basis, MBA estimated 52,000 new homes were sold during August, down 3.7% from 54,000 in July.

The apparent divergence — fewer mortgage applications but a higher seasonally adjusted sales estimate — reflects the methodology behind the Builder Application Survey. MBA combines application information with assumptions about market coverage and other factors to produce an early estimate of new-home sales.

The federal government’s separate New Residential Sales report is the official monthly estimate produced by the Census Bureau and HUD. For July, that report put new single-family home sales at a seasonally adjusted annual rate of 607,000 and estimated 9.6 months of supply at the prevailing sales pace.

The government’s August new-home sales report is scheduled for Sept. 24, providing the next benchmark for whether MBA’s estimated monthly rebound is reflected in the federal data.

Construction data show a mixed supply picture

Builders increased the pace of single-family construction starts in August even as other forward-looking measures softened.

Single-family housing starts rose 7.6% from July to a seasonally adjusted annual rate of 918,000, according to the Census Bureau and HUD. But single-family building permits fell 1.8% to an annual rate of 878,000, while single-family completions declined 10.4% to 816,000.

The combination suggests builders are still bringing projects into the market, but the pipeline remains sensitive to financing conditions and buyer demand.

That makes the growing FHA share more than a change in loan preference. It is another indication that affordability is shaping the structure of the new-home market.

With new-home mortgage applications down for five consecutive months, builders leaning more heavily on incentives and the benchmark 30-year mortgage rate near 7%, the next question is whether government-backed financing can continue helping buyers bridge the affordability gap — or whether higher borrowing costs further reduce overall demand.

The Sept. 24 federal new-home sales report will provide the next major test.