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If you’re a first-time homebuyer who hasn’t saved enough to make a large down payment or are concerned you might not qualify for a conventional home loan, a Federal Housing Administration (FHA) loan could be ideal.
Loans that are insured by the FHA have lower down payment requirements than conventional loans and tend to be a more affordable option for first-time homebuyers. However, even an FHA loan has fees and extra costs that need to be factored into your monthly mortgage payment.
Use this calculator to estimate how much you might pay for an FHA home loan to determine whether it’s the best fit for you.
Today’s Interest Rate on an FHA Loan
How to Use This FHA Loan Calculator
To use this FHA calculator, you will need to know how much you can afford to put down on a home, the minimum down payment you expect to make based on your credit score and the loan term.
FHA Mortgage Calculator Definitions
- Loan amount: The amount of money a borrower receives from a mortgage lender to cover the purchase of a home, excluding any fees the lender charges. Most lenders do not provide 100% financing but will often cover the remaining purchase amount after deducting your down payment.
- Interest rate: The annual cost of borrowing from a lender, expressed in percentage, excluding any fees or other charges.
- Loan term: The length of time a borrower has to pay off a mortgage loan and related fees. This is typically 15 or 30 years for an FHA loan. A loan term can be subject to change if a borrower pays off a loan early or chooses to refinance a loan.
- Down payment: The sum of money that a buyer pays upfront for a home. Typical down payments range from around 5% to 20% of a home’s purchase price. But FHA loans require a down payment of just 3.5%.
- Principal and interest: The principal is the money the homebuyer borrows from the lender and needs to pay back. Interest is what the lender charges the borrower for the loan. Principal and interest usually comprise the central portion of a borrower’s monthly payment.
- FHA mortgage insurance: Premiums the FHA charges the borrower to protect the FHA-approved lender if the borrower defaults on mortgage payments. Homebuyers pay an upfront FHA mortgage insurance premium (MIP), currently 1.75% of the base loan amount, and an annual MIP that is included in your monthly mortgage payment. The monthly MIP amount is based on your loan terms and down payment, but you can expect to pay 0.80% or slightly more annually on a 30-year loan.
- Property tax: Taxes collected by local and state authorities based on a property’s assessment and local tax rates. Property taxes are used to fund public services.
- Homeowners insurance: Covers losses and damage to your property if anything unexpected occurs, such as fire or theft or if someone is injured in your home. Lenders typically require borrowers to show proof of a homeowners insurance policy.
- Homeowners Association (HOA): A self-governing body that collects mandatory fees from homeowners in the community to maintain common spaces, amenities and pay assessments.
- Mortgage escrow: Money collected as part of a borrower’s monthly payment to cover property taxes, homeowner’s insurance and mortgage insurance premiums to ensure these are paid on time, lowering the risk of defaulting on the loan. The FHA requires mortgage escrow accounts for any loans the agency insures.
How an FHA Loan Works
FHA loans are government-backed, fixed-rate mortgages insured by the Federal Housing Administration. FHA loans have less stringent financial requirements compared to conventional loans serviced by private mortgage lenders such as banks and credit unions. Because of this, FHA loans offer more flexibility to people who are still building their credit. For instance, if you have a credit score of 580, you may qualify for an FHA loan that only requires a 3.5% down payment on a home’s purchase price.
FHA Loan Limits
The FHA caps the maximum loan amount it insures. This “lending limit,” which the FHA updates annually, is influenced by various factors that include limits set by Freddie Mac and Fannie Mae—the nation’s two federally backed mortgage companies created by the U.S. Congress—and property type.
The FHA’s current ceiling for single-family home loans in 2023 for most areas of the country is around $420,680. The limit for a four-plex in most areas is roughly $809,150. However, the FHA’s lending limit is in the neighborhood of $1,867,275 for a four-plex in high-cost areas, such as in certain cities and counties in New York and California.
How to Qualify For an FHA Mortgage
FHA loans are designed to make homeownership more accessible to those who are unable to get approved for conventional loans. Nonetheless, FHA loans do still have certain minimum requirements.
FHA Loan Qualifications Checklist
Before you contact an FHA-approved mortgage lender, review these guidelines to make sure you fulfill the minimum requirements to qualify as a borrower and that you can afford the required costs:
- FICO credit score minimum of 580 with a 3.5% down payment or credit score between 570 and 579 with a 10% down payment
- Debt-to-income (DTI) ratio less than 43%
- Used as primary residence only
- Mandatory upfront and annual mortgage insurance payment (MIP)
- Proof of steady employment and stable income
- Property must meet certain standards and be acceptable to an FHA appraiser
Bottom Line
If you’re interested in buying a primary residence without putting down a large sum of money, an FHA loan could be the way to go if you qualify.
However, with the flexibility of the smaller down payment come some potential downsides, such as having to pay mortgage insurance premiums. Additionally, your monthly mortgage payments may be higher than you can afford.
Putting down less money upfront also means you have that much less equity in your home, which could become problematic—if the value of your home goes down, you’re at risk for negative equity (owing more on your mortgage than the value of your home is worth). So, before pursuing an FHA loan, take an inventory of your financial health to ensure that an FHA loan is right for you.
Frequently Asked Questions (FAQs)
How much can I get approved for with an FHA loan?
The FHA approves loan amounts based on several factors, such as your monthly income and expenses, credit score, interest rate, the loan term and the value of the property. The maximum FHA loan in most areas of the country for a single-family home is currently $420,680 for 2022.
Can I get an FHA loan with a low credit score?
Borrowers with a minimum credit score of 580 are eligible for an FHA loan with a 3.5% down payment. Credit scores between 570 and 579 are generally eligible for a loan with a 10% minimum down payment.
What are the closing costs with an FHA loan?
Closing costs for FHA loans generally range between 3% and 4% of the purchase price. Closing costs include various processing and lender fees.
Can closing costs be included in the FHA loan?
Closing costs are typically paid upfront and are the responsibility of the homebuyer, but FHA rules allow sellers to contribute up to 6% of the purchase price to closing costs. If you qualify, you can roll the closing costs into your loan payments. However, this will increase your monthly mortgage payment.
How can I lower my FHA mortgage payment?
Increasing your down payment can potentially reduce your interest rate, consequently lowering your monthly mortgage payment. You may also be able to lower your monthly payment by refinancing to a conventional mortgage with a private lender if your loan-to-value (LTV) ratio is 78% or lower. Doing this will eliminate the monthly mortgage insurance requirement. However, refinancing to a conventional loan also comes with closing costs and more rigorous requirements, like a higher credit score and lower DTI ratio.
Can I refinance an FHA loan?
If you don’t qualify to refinance to a conventional loan, you can refinance your existing FHA-insured mortgage through several FHA refinance options, including a simple FHA refinance, an FHA streamline refinance, an FHA rehabilitation mortgage or an FHA cash-out refinance.
