FHA Loan Calculator 2021CASAPLORERTrusted & Transparent
The FHA loan calculator provides the monthly mortgage payment for an FHA loan. The total monthly mortgage payment includes the principal, interest, property tax, homeowner’s insurance, HOA fees, and mortgage insurance premium (MIP). FHA loans offer a low down payment option for individuals with a lower credit score and low to moderate-income. However, all FHA loans require FHA mortgage insurance premium (MIP) even if the down payment is greater than 20%. The FHA loan calculator requires the home price, down payment, mortgage rate, loan term, and additional expenses.
How does the FHA Loan Calculator Work?
The FHA loan calculator helps calculate the monthly mortgage payment for an FHA loan. The FHA loan rates, requirements, and eligibility can be found on the FHA loan page. In order to calculate monthly payment, the following information is required:
- Home Price – FHA loans cannot be beyond the FHA loan limits set by the Department of Housing and Urban Development (HUD). The loan limits vary by county, the range of the loan limit in 2021 is from $356,362 to $822,375. Loan limits can be found on the Housing & Urban Developments page.
- Down Payment – The minimum down payment for an FHA loan is 3.5%. This results in a maximum loan-to-value ratio of 96.5%.
- Loan Term – The FHA loan can only be either a 15 or 30-year fixed mortgage.
- Mortgage Rate – The FHA loan rates are competitive and depend on several factors such as down payment, credit score, debt-to-income (DTI) ratio , loan-to-value (LTV) ratio , etc.
- Additional Options – Property tax, homeowners insurance, and HOA fees can also be included in the total monthly mortgage payment.
The FHA loan calculator also determines the amount of FHA mortgage insurance premium (MIP) that will be included in the monthly mortgage payment. FHA MIP is required for all FHA loans irrespective of the size of the down payment. The FHA MIP has an upfront fee of 1.75% and an annual fee which ranges from 0.45% - 1.05%. The fee is determined based on the mortgage amount, down payment, and term of the loan. The FHA loan calculator calculates the monthly mortgage payment by amortizing the mortgage over the loan term. Additional fees and FHA MIP are included in the breakdown.
How does the FHA Loan Calculator Help Me?
The FHA loan calculator provides a great deal of information from the breakdown of your monthly home costs including FHA MIP to the total expenses related to your FHA loan. By changing the inputs in the calculator, the following information can be determined:
- Length of Stay: The FHA loan calculator can help determine whether you want to stay in the home for 15 years or 30 years. Each option has its pros and cons, with the monthly mortgage payment changing in each case. A 15-year mortgage will result in a higher monthly mortgage payment but lower total interest.
- Fixed or Adjustable Rate Mortgage: The calculator can determine the monthly mortgage payment for a fixed rate, this value can then be compared to an adjustable-rate mortgage (ARM). ARM’s are considered better when the homeowner plans to stay in the home only for a few years as it has a lower initial interest rate resulting in greater home equity.
- Home Price: The calculator can help determine if the monthly mortgage payment is beyond your budget and if you should consider buying a cheaper home.
- Down Payment: Down payment is extremely important and one of the most expensive upfront costs for purchasing a home. The Federal Housing Administration provides the benefit of a minimum down payment of only 3.5% with a credit score that is above 580. With a larger down payment, the FHA loan rate can be lower and the monthly payment can also go down.
Can my FHA Monthly Mortgage Payment Increase?
There are certain ways you can end up having a higher monthly mortgage payment than expected:
- Adjustable-rate Mortgage (ARM) : If you have an ARM and not a fixed-rate mortgage then your monthly mortgage payment is heavily dependent on the benchmark index. The ARM fee is determined by the benchmark index and an additional credit spread because of the higher risk to the lender. A benchmark index like the prime rate which is linked to the Fed funds rate may go up and down during the life of the mortgage. If the prime rate rises because of an increase in the Fed funds rate then the monthly mortgage payment may also increase. For example, if the mortgage lender determines the ARM as prime rate + 100bps (1%) and the current prime rate is used, then the mortgage rate is 4.25% (3.25% + 1%). If the prime rate increases to 4.25%, then the mortgage rate will increase to 5.25% (Prime 4.25% + Spread 1%).
- Other Expenses: Property taxes and homeowners insurance is likely to increase over time. Property taxes are determined by local governments and are beyond your control. However, homeowners insurance can be lowered by moving to an insurer proving a better rate.
- Late Payment: If you are late on your monthly mortgage payment then late payment fees will have to be paid in the following month. It is essential to plan your payments using an amortization schedule
How can I Lower my FHA Loan Monthly Mortgage Payment?
There are 4 different ways in which the FHA monthly mortgage payment can be lowered:
- Lengthen Mortgage Term: If you decide to get a 15-year mortgage and the monthly mortgage payment is too high, the easiest way to reduce it is by changing it to a 30-year mortgage. With a longer amortization period , the monthly mortgage payment reduces. However, a greater amount of interest is paid over the life of the loan. For example, a 15-year fixed mortgage with a mortgage rate of 2.5% for a $300,000 home will have a monthly payment of $2,000. Whereas, the same mortgage for 30 years will have a monthly payment of $1,185, or $815 lower.
- Cheaper Home: Buying a smaller home with a lower price will result in a smaller loan amount and lower monthly mortgage payments.
- Remove FHA MIP: FHA MIP is a mandatory requirement for all FHA loans. There are certain cases when FHA MIP does not have to be paid for the life of the loan. If the down payment is greater than 10% then the FHA MIP can be removed after 11 years instead of being paid for the life of the loan.
- Better Mortgage Rate: A lower mortgage rate can help reduce the monthly mortgage payment. It is essential to look into at least 3-4 different FHA lenders as your mortgage rate can change based on several factors such as down payment amount , debt-to-income (DTI) ratio , credit score, loan-to-value (LTV) ratio , etc.