FHA, VA and USDA Mortgage Rates Rise Into September but Stay Below Conventional Loans

FHA, VA and USDA Mortgage Rates Rise Into September — but Less Than Conventional Loans

Executive Summary

Government-backed mortgage rates moved higher entering September, but FHA, VA and USDA loans have risen more slowly than conventional mortgages over the past week.

Based on Mortgage Research Center data available Sept. 1, the average 30-year FHA rate was 6.164%, the average VA rate was 6.253%, and the average USDA rate was 6.206%. By comparison, the average 30-year conventional rate reached 6.803%.

That leaves government-backed borrowers with headline rates roughly 55 to 64 basis points below the conventional average, although mortgage insurance, guarantee fees, funding fees and borrower qualifications can materially change the total cost of each loan.

Government mortgage rates remain below conventional loans

Mortgage rates continued climbing as September began, extending a late-August increase that has pushed borrowing costs back toward their highest levels of the past year.

The latest Mortgage Research Center averages show:

The data were available Sept. 1 and published Sept. 2.

On that basis, FHA rates were about 64 basis points below the conventional average. USDA rates were roughly 60 basis points lower, while VA rates were about 55 basis points lower.

The spread matters because even relatively small rate differences affect monthly principal-and-interest payments.

For example, on a hypothetical $300,000, 30-year mortgage, principal and interest would be about $1,956 per month at 6.803%. At 6.164%, the payment would be about $1,830 — roughly $126 less per month.

That calculation is only an illustration. It does not include mortgage insurance, guarantee fees, funding fees, taxes, homeowners insurance or other costs, and borrowers cannot necessarily choose among FHA, VA, USDA and conventional financing on identical terms.

FHA and VA data show the same upward trend

A separate Mortgage News Daily index also shows government-backed mortgage rates moving higher.

Mortgage News Daily put the average 30-year FHA rate at 6.41% on Sept. 1, up from 6.32% on Aug. 25. Its VA index rose to 6.43% from 6.34% over the same period. The outlet's top-tier conventional 30-year rate increased to 6.89% from 6.74%.

The absolute rates differ from Mortgage Research Center's averages because rate surveys use different methodologies, borrower assumptions and lender samples. But both datasets show the same broad direction: rates have been rising, while FHA and VA pricing remains below conventional benchmarks.

Mortgage News Daily said the conventional 30-year average reached 6.89% on Sept. 1, its highest level since June 2025. It tied the latest increase partly to higher oil prices and bond yields amid intensified fighting involving the United States and Iran.

Mortgage rates are heavily influenced by the bond market because mortgage-backed securities compete with other fixed-income investments for investor capital. Rising market yields generally put upward pressure on mortgage pricing.

Lower FHA rates do not mean lower total costs for every borrower

FHA loans can carry a lower interest rate than comparable conventional financing, but borrowers also have to account for Federal Housing Administration mortgage insurance.

For most FHA purchase and refinance loans, HUD requires an upfront mortgage insurance premium equal to 1.75% of the base loan amount. For many 30-year loans with balances of $726,200 or less, annual mortgage insurance currently ranges from 0.50% to 0.55% depending on the loan-to-value ratio.

That means a borrower comparing FHA with conventional financing should evaluate the annual percentage rate, cash required at closing and total monthly payment — not simply the note rate.

FHA financing can nevertheless remain competitive for borrowers whose credit profile, down payment or debt-to-income ratio makes conventional pricing less favorable.

VA loans avoid monthly mortgage insurance

VA-backed mortgages have a different cost structure.

The Department of Veterans Affairs does not set the interest rate charged by private lenders. VA explicitly states that lenders determine the mortgage rate, discount points and other closing costs.

VA loans generally do not require a down payment or monthly mortgage insurance, which can make their total monthly cost attractive even when the advertised interest-rate advantage over FHA or USDA financing is relatively small.

Many borrowers, however, pay a one-time VA funding fee. For a first use of a VA purchase loan with less than 5% down, the current fee is 2.15% of the loan amount. Subsequent use with less than 5% down generally carries a 3.3% fee. Borrowers who meet certain disability-related and other exemption criteria do not pay the fee.

Because the funding fee can generally be financed, borrowers should compare both the initial loan balance and monthly payment when evaluating a VA quote against another mortgage product.

USDA guaranteed loans carry separate program fees

USDA guaranteed mortgages also combine market-set lender rates with federal program costs.

For fiscal year 2026, USDA's Single Family Housing Guaranteed Loan Program charges a 1% upfront guarantee fee and a 0.35% annual fee for purchase and refinance transactions.

The USDA guaranteed program is designed for eligible borrowers purchasing qualifying properties in rural areas and can provide 100% financing, subject to program requirements.

Mortgage Research Center-affiliated USDA Loans reported an average 30-year USDA purchase rate of 6.206% for Sept. 1, based on its lender dataset.

That should not be confused with USDA's separate Section 502 Direct Loan program.

Effective Sept. 1, USDA Rural Development lists a 5.25% interest rate for Single Family Housing Direct loans for eligible low- and very-low-income borrowers. Payment assistance can reduce the effective rate further for qualifying households.

The direct program is government-funded and operates differently from the USDA guaranteed mortgages originated by private lenders.

Higher rates are already weighing on mortgage demand

Recent application data suggest borrowers are responding to the renewed increase in financing costs.

The Mortgage Bankers Association said total mortgage application volume fell 1% during the week ending Aug. 21. Purchase applications declined 0.3%, while refinancing activity fell 2% from the previous week and was 17% below the same period a year earlier.

MBA has also pointed to affordability pressures as a reason some prospective buyers are delaying purchases as mortgage rates remain elevated.

That makes the growing spread between conventional and government-backed rates increasingly relevant for borrowers who qualify for more than one financing option.

What borrowers should watch next

The immediate question is whether the latest increase in Treasury and mortgage-market yields continues or reverses.

Government backing can reduce lender credit risk and help FHA, VA and USDA mortgages price differently from conventional loans, but those programs are not insulated from broader bond-market movements. If market yields continue rising, government mortgage rates can rise with them.

For borrowers, the current numbers reinforce another point: the lowest advertised interest rate is not automatically the lowest-cost mortgage.

FHA mortgage insurance, VA funding fees, USDA guarantee fees, lender points and individual borrower qualifications can all change the comparison. The most meaningful figure is the complete loan cost shown on competing Loan Estimates — including rate, APR, upfront charges and monthly payment — rather than the headline rate alone.