FHA Loan calculator helps you estimate the monthly payments and total cost of financing your home with an FHA loan. The FHA home loan calculator also provides you with the numbers you need to make the best decision in choosing the right FHA-approved lender for your mortgage loan. FHA loans were created to support home buyers with limited cash saved for a down payment.
If you can afford a sizeable down payment, you may prefer to use the well-equipped mortgage calculator and take advantage of lower interest rates to save more money in the long run. Otherwise, you can keep reading to decide if an FHA loan is right for you. You will also learn about FHA loan limits, how to calculate mortgage insurance on an FHA loan, understand the special considerations for the FHA loan requirements, how to qualify for an FHA loan and how to apply for an FHA loan. If your credit score is below the FHA loan limits, you can use the personal loan calculator to estimate other options. There is also the land loan calculator if you are looking for land financing.
What is an FHA loan?
An FHA loan is a mortgage from private lenders regulated and insured by the Federal Housing Administration (FHA). Congress established the FHA in 1934, during The Great Depression. At the time, homebuyers were defaulting on their loans due to the economic downturn. It led to a rise in foreclosures and a decline in homeowner numbers. The FHA continuing mission is to create more homeowners in the U.S. by insuring mortgages from the previous 50% - 60% to currently 96.5% of a home's price. Therefore, FHA loan made homeownership more affordable to almost anyone who may not otherwise qualify for a conventional mortgage loan.
The FHA doesn't lend the money directly to borrowers but offsets the risk taken by FHA-approved lenders to cater to low- to moderate-income borrowers.
Types of FHA loan
There are different types of FHA loans. The options range from the standard home purchase loans to loans designed for specifically targeted mortgage needs. You can use the FHA Loan calculator irrespective of the FHA loan program. The different FHA loan programs are:
Basic home mortgage loan 203(b) – traditional mortgage used to finance a primary residence. This loan has fixed and adjustable rates to match different types of homes.
FHA 203(k) rehab mortgage – mortgage program for home purchase and home improvements. It helps you cover repairs and renovations after making a down payment and don't have cash at hand for enhancements. However, you must agree to appraisals - before and after renovations, which must finish within six months. The funds are also paid directly to contractors from an escrow account.
Home Equity conversion mortgage (HECM) – reverse mortgage program allows homeowners aged 62 and above to exchange home equity for cash while retaining title to the home.
FHA Section 245(a) – mortgage program for those who currently have a limited income but expect their earnings to increase. You can use a Graduated payment mortgage if you anticipate a substantial increase over the next 5 to 10 years. Or the Growing Equity Mortgage in which payments start small and increase in monthly principal payments gradually over time.
Energy efficiency mortgage (EEM) – this is a mortgage program for new and existing homes to finance energy-efficient home improvements. It is similar to the FHA 203(k) but intended to help you lower your utility bills so you can have more funds for your mortgage payments.
FHA loan limits
There are limits to the amount the FHA will insure. These limits vary according to the region or county in which you live. The U.S. Department of Housing and Urban Development (HUD) determines each county's median home price and sets its limits at 115% of this median. Thus, low-cost counties have a lower limit (Floor), while high-cost counties have higher limits (Ceiling). Regions with very high construction costs, such as the U.S. Virgin Islands, are considered "Special exception areas" and have much higher limits. You will find a summary of the FHA loan limits in 2020 below:
2020 FHA Loan Limits
|Property type||Low-cost area||High-cost area||Special exception area|
How to qualify for an FHA loan?
To qualify for the FHA loan, you must meet the FHA loan requirements. However, these are the minimum requirements as different lenders can have additional requirements, including a higher interest rate if your credit score and down payment is low. The FHA loan requirements are as follows:
Credit score: Your credit score must be at least 500. If your credit score is between 500 and 579, you have to make a 10% down payment. But if your credit score is 580 and above, you can make a lower 3.5% down payment.
Down payment: Unlike conventional loans, 100% of your down payment can be a gift. And there are also down payment assistance programs to help when you need it.
Debt-to-Income Ratio: Your debt-to-income (DTI) ratio must be less than 43%. It means that your total monthly debt cannot be more than 43% of your gross income. However, it is possible to get approval for a DTI as high as 50% under particular consideration.
Primary residence: The home must be your primary residence. You cannot use FHA loan financing for investment or rental properties.
Property standard: The property you intend to purchase with your FHA loan financing must meet strict health and safety standards. The FHA requires an appraisal to satisfy that the purchase (or renovations in the case of an FHA 203(k) loan) is a worthy investment.
Work history: You must have a steady income or proof of employment for the same employer for the past two years.
If you are self-employed, you need two years of documented proof of tax returns, balance sheets, and profit and loss statements.
If you've been self-employed for less than two years, you can provide evidence of work and income history for the two years preceding self-employment. Self-employment has to be in a similar or related occupation.
Lawfully resident in the U.S.: You must be resident in the U.S., with a valid social security number, and be of legal age to sign a mortgage.
Mortgage Insurance Premium (MIP): You pay two types of MIPs, a one-time upfront MIP (UFMIP) and an annual MIP, paid monthly.
Upfront MIP: In 2020, the upfront UFMIP is 1.75% on the loan amount. You can choose to pay it at the time of closing or rolling into the loan's total amount. These funds are deposited into an escrow account and used to make mortgage payments if you default on your loan.
Annual MIP: Depending on the loan's length and the loan-to-value ratio (LTV), the annual MIP ranges between 0.45% and 1.05% of the loan amount. The annual MIP payments are made monthly (usually 0.85% of the loan amount) for either 11 years (if you make a 10% down payment) or the loan's full term.
You can request to remove the annual MIP if you already have 20% equity on the home at the FHA loan financing time. Otherwise, you must wait for the loan balance to achieve 22% equity, i.e., 78% LTV, to cancel the mortgage insurance. MPI is mandatory to protect the lender and the FHA during the most vulnerable early years of the loan. So, a lender can decline your MIP removal request if you have a poor payment history, miss, or make a late payment.
The FHA Annual MIP rates table below will help you determine the proper annual MIP for your loan.
FHA Annual Mortgage Insurance Premium (MIP) Table 2020
|Loan Amount||LTV Ratio||Annual MIP Ratio||How long will you pay the Annual MIP|
|Loan Term over 15 years|
|$625,500 or Less||95% or Less||0.80%||11 years for LTV less than 90%|
|Loan term for LTV 90% or more|
|$625,500 or Less||more than 95%||0.85%||Loan term|
|More than $625,500||95% or Less||1%||11 years for LTV less than 90%|
|Loan term for LTV 90% or more|
|More than $625,500||more than 95%||1.05%||Loan term|
|Loan Term 15 years or less|
|$625,500 or Less||90% or Less||0.45%||11 years|
|$625,500 or Less||more than 90%||0.70%||Loan term|
|More than $625,500||78% or Less||0.45%||11 years|
|More than $625,500||78% - 90%||0.70%||11 years|
|More than $625,500||more than 90%||0.95%||Loan term|
How to apply for an FHA loan?
If you meet the requirements to qualify for an FHA loan, you will need to provide your personal and financial documents to apply with an FHA-approved lender. Your lender can be either a bank, credit union, or other financial institution.
The lender will evaluate your qualification using your work and previous payment-history records such as credit reports and tax returns. For most lenders, you will not qualify if:
- You are delinquent on your federal student loans or income taxes.
- You are still within two years from a bankruptcy event (unless you can prove the event was beyond your control)
- You are still within three years of a previous mortgage foreclosure event.
You will be required to provide details of your social security number, proof of U.S. citizenship, legal permanent residency or eligibility to work in the U.S., and Bank statements for the last 30 days at a minimum.
Finally, if you are making a down payment with gift money, you will need to provide a letter from your donor that you don't need to repay the money.
FHA loan example - How to calculate mortgage insurance on FHA loan?
Mr. Beans is trying to secure an FHA loan financing for a home worth
$200,000. He has a credit score of 520, which does not qualify him for the
3.5% down payment. But he has evaluated different loan offers and found that the
10% down payment is a better deal than that offered by a conventional loan. Let's calculate how much he would need to pay through a loan term of 30 years at
3% interest per annum.
First, he will have to check qualification that the
$200,000is within the FHA loan limits for the county he wants to make the purchase.
Calculate the down payment and FHA loan amount
down payment = 10% of home price = 10% * $200,000 = $20,000
Next, the FHA loan amount
loan amount = home value – down payment = $200,000 - $20,000 = $180,000
Calculate the Upfront MIP (UFMIP)
UFMIP = 1.75% of loan amount = 1.75% * $180,000 = $3,150
UFMIP is a one-time payment deposited into an escrow account set up by the U.S. Treasury Department; if Mr. Beans defaults on the loan, the fund is used to make mortgage payments.
Calculate the annual MIP and compute the monthly premiums
Annual MIP = 0.85% of loan amount = 0.85% * $180,000 = $1,530 = $1,530 / 12 = $127.5 monthly
Mr. Beans will have to pay $127.5 monthly MIP in addition to the $3,150 one-time UFMIP on a $180,000 FHA home loan. But making a 10% down payment now means he would only have to pay premiums for the first 11 years of the loan term. By merely inputting key figures, the FHA loan calculator can compute all these details and more, in seconds!
Pros and Cons of an FHA loan
As mentioned before, the FHA designed its loan for homeowners who cannot afford a large down payment. FHA-approved lenders set different requirements and interest rates to make the FHA loan a more expensive option for borrowers with good credit. That is why you must always consider all sides before making important financial decisions.
Pros of FHA loan
- Allows down payment as low as 3.5%.
- Allows lower minimum credit scores than conventional loans.
- Allows debt-to-income ratios as high as 43%.
- The fees usually associated with mortgages, like closing costs and insurance fees, are typically lower with an FHA loan.
Cons of FHA loan
- FHA mortgage insurance lasts the loan's full term with a down payment of less than 10%.
- The property must meet strict health and safety standards.
- If the property does not meet the minimum standards and the seller won't do the repairs, you must pay for the repairs before the funds are released.
- The loan amount you can borrow must comply with the limits for your county or region.
- The annual percentage rate (APR), including fees and additional charges, is usually higher than conventional loans.
- Closing an FHA loan takes a lot of time and paperwork than conventional loans.
Ultimately, the goal is to get the cheapest mortgage deal so that you will not have any problems paying off your loans. If you have good credit and can meet up to 10% down payment for a loan, it is wise to compare different lenders' rates to get the best deal. The FHA loan mortgage calculator is the perfect tool to start with when deciding what type of mortgage is best for you.