FHA Loan Calculator 2023
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 an 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 – The FHA loan has loan limits that have to be met. The loan limits vary by county, the range of the loan limit is from $420,680 - $970,800. Loan limits can be found on the FHA page.
- Down Payment – The minimum down payment for an FHA loan is 3.5%. This results in a maximum loan-to-value (LTV) ratio of 96.5%.
- Loan Term – The FHA program offers loans with either a 15 or 30-year term.
- Mortgage Rate – The FHA loan rates are competitive and depend on several factors such as down payment, credit score, debt-to-income 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 that 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.
What Is an FHA Loan
FHA loans are unconventional mortgages that are insured by the Federal Housing Administration. These loans are provided to a targeted demographic for them to have an opportunity to purchase a house. The loan usually works best for people who are at a disadvantage when it comes to buying a home. People who are low to middle income may find this loan useful because it lowers the barriers to buying a home by decreasing the down payment and credit score requirements.
Not everyone may be able to qualify for this type of loan because there is a guideline as to who can be eligible for the loan. Additionally, not every house can be financed using an FHA loan. A property that is being financed using an FHA loan must meet the FHA housing standards. There is also a maximum loan limit that is set by the Department of Housing and Urban Development (HUD), which is equal to $420,680 for most counties for the year 2022.
Even though FHA loans are backed by the Federal Housing Administration, the loans are not issued directly through the administration. Instead, the loans are issued by private FHA-approved lenders while the Federal Housing Administration simply insures the loan. Even though there are guidelines that lenders have to follow, they can sometimes deviate from the eligibility requirements. For example, the debt-to-income ratio may be slightly higher if the borrower has a very good credit score. Because of that, a borrower should try to apply for an FHA loan even if they are missing some eligibility requirements.
FHA Loan Eligibility
FHA mortgages have quite a few reasons why one could consider taking them. Even though it looks like a great deal, not everyone can be eligible to get an FHA loan. There are multiple parameters a borrower must meet before being eligible to request an FHA loan.
FHA Eligibility Guidelines
- A minimum credit score of 580
- A minimum of 3.5% in down payment
- A maximum debt-to-income (DTI) ratio of 43%
- 1-2 years of consistent employment history
- A property must meet FHA standards.
- Loan amount must be lower than or equal to FHA loan limits. As of 2022, the loan limit is $420,680 for most counties.
If a borrower satisfies all the factors listed above, they can confidently apply for an FHA loan. On the other hand, every lender can deviate from the set guidelines when issuing a loan. Because of that, even if a borrower does not meet some criteria in the list, they should shop around and see what kind of mortgage offers they can get. If a borrower cannot find an appropriate deal for FHA, they could also try to get a loan through a Transfer of Physical Assets (TPA) program that is available exclusively for FHA loans.
Mortgage Insurance Premium
All FHA loans are required to be protected with private mortgage insurance. Because of that, borrowers with an FHA loan have to pay a mortgage insurance premium (MIP). MIP is usually a percentage of the principal of an FHA loan. FHA loans with an LTV ratio of more than 90% have to pay for mortgage insurance premium during the life of the loan. On the other hand, FHA loans with an LTV ratio of no more than 90% may stop paying MIP after 11 years of mortgage life. Conventional loans that have an LTV ratio of more than 80% are also required to purchase private mortgage insurance. Unlike FHA loans, conventional loans allow the borrowers to stop paying for private mortgage insurance as soon as the LTV ratio drops below 80% on their loan. Many people who finance a property with an FHA loan refinance it with a conventional loan when the LTV ratio decreases below 80%. They do it to save money on MIP. Annual MIP is determined by two variables: loan value and LTV ratio. A borrower should compare MIP and PMI before choosing to refinance their loan because it is not always clear what is better for a particular financial situation.
| MIP Rate Schedule | |||
|---|---|---|---|
| Loan Value | LTV Ratio | MIP | Duration |
| Loan Value ≤ $625,000 | LTV ≤ 90% | 0.8% | 11 Years |
| 90% < LTV ≤ 95% | 0.8% | Loan Lifetime | |
| 95% < LTV | 0.85% | Loan Lifetime | |
| Loan Value ≥ $625,000 | LTV ≤ 90% | 1% | 11 Years |
| 90% < LTV ≤ 95% | 1% | Loan Lifetime | |
| 95% < LTV | 1.05% | Loan Lifetime | |
The table above shows that MIP varies with the loan value. FHA loans have a limit, which is equal to $356,362 in most counties for 2021. Borrowers with FHA loans tend to have MIP within the range of 0.8% to 0.85%.
FHA Loan Calculator Example
Many inputs are used in this calculator. Even though it might seem difficult to calculate the payments required for the FHA loan, the steps are not as difficult. This section provides an intuition behind each step done in this calculator.
Suppose, an individual is planning to buy a $300,000 house and finance it with a 30-year FHA loan with an interest rate of 3%. The buyer is planning to put a down payment of 3.5%. FHA loans require the borrower to pay a mortgage insurance premium (MIP) for securing the loan. Using these variables, the borrower can calculate the down payment amount, loan value, and LTV ratio.
It is also possible to find mortgage insurance premium (MIP) given the LTV ratio:
| MIP Price Schedule for Loan Values < $625,000 | ||
|---|---|---|
| LTV Ratio | MIP | Duration |
| LTV ≤ 90% | 0.8% | 11 Years |
| 90% ≤ LTV < 95% | 0.8% | Loan Lifetime |
| 95% < LTV | 0.85% | Loan Lifetime |
According to the table above, MIP for this mortgage is equal to 0.85% of the principal loan amount. Now we can find how much MIP costs monthly using the formula below.
It is important to note that MIP changes based on the principal of the loan. Because of that, MIP for each period must be calculated recursively based on how much principal is left at the beginning of each period. Calculated MIP above is the payment that needs to be made only in the first month of the loan. To calculate monthly payments of principal and interest for an FHA loan, the following formula should be used.
Monthly mortgage payments will be the same over the lifetime of the mortgage, but the amount of interest and principal paid on the mortgage will be changing month over month. The calculator provides a clear schedule of how the loan components are paid off month over month.
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 Association 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. You can do so with FHA Streamline Refinance. 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.