FHA home loans require just 3.5% down and are ultra-lenient on credit scores and employment history compared to other loan types. The first step to seeing if FHA can make you a homeowner is to run the numbers with this FHA mortgage calculator.
>Related: How to buy a house with $0 down: First-time home buyer
FHA mortgage calculator terms
Many first-time home buyers aren’t aware of all the costs associated with homeownership.
When you pay your mortgage, you’re not just repaying loan principal and interest to your lender. You also need to pay homeowners insurance, property taxes, and other associated costs.
The FHA mortgage calculator above lets you estimate your ‘true’ payment when all these fees are included. This will help you get a more accurate number and figure out how much house you can really afford with an FHA loan.
Here’s a breakdown to help you understand each of the terms and fees included in our FHA loan affordability calculator:
This is the dollar amount you put toward your home purchase. FHA features a low down payment minimum of 3.5% of the purchase price. This can come from a down payment gift or an eligible down payment assistance program.
This is the fixed amount of time you have to pay off your mortgage loan. Most home buyers choose a 30-year, fixed-rate mortgage, which has equal payments over the life of the loan. 15-year fixed-rate loans are also available via the FHA program. FHA offers adjustable-rate mortgages, too, though these are far less popular because the mortgage rate and payment can increase during the loan term.
This is the annual rate your mortgage lender charges as a cost of borrowing. Mortgage interest rates are expressed as a percentage of the loan amount. For example, if your loan amount is $150,000 and your interest rate is 3.0%, you’d pay $4,500 in interest during the first year (0.03 x 150,000 = 4,500).
Principal and interest
This is the amount that goes toward paying off your loan balance plus interest due to your mortgage provider each month. This remains constant for the life of a fixed-rate loan. Your monthly mortgage payment doesn’t change, but each month you pay more in principal and less in interest until the loan amount is repaid. This payment progression is called amortization.
FHA mortgage insurance
FHA requires a monthly fee that is a lot like private mortgage insurance (PMI). This fee, called FHA Mortgage Insurance Premium (MIP), is a type of insurance that protects lenders against loss in case of a foreclosure. FHA charges an upfront mortgage insurance premium (UFMIP) equal to 1.75% of the loan amount. This can be rolled into your loan balance. It also charges an annual mortgage insurance premium, usually equal to 0.85% of your loan amount. Annual MIP is paid in monthly installments along with your mortgage payment.
The county or municipality in which the home is located charges a certain amount per year in taxes. This cost is split into 12 installments and collected each month with your mortgage payment. Your lender collects this fee because the county can seize a home if property taxes are not paid. The calculator estimates property taxes based on averages from tax-rates.org.
Lenders require you to insure your home from fire and other damages. Your monthly home insurance premium is collected with your mortgage payment, and the lender sends the payment to your insurance company each year.
If you are buying a condo or a home in a Planned Unit Development (PUD), you may need to pay homeowners association (HOA) dues. Loan officers factor in this cost when determining your DTI ratios. You may input other home-related fees such as flood insurance in this field, but don’t include things like utility costs.
Property taxes and homeowners insurance are typically paid to your lender each month along with your mortgage payment. The taxes and insurance are kept in an ‘escrow account’ until they become due, at which time your lender pays them to the correct company or agency.
FHA mortgage eligibility
FHA mortgages have great perks for first-time home buyers. But to use this loan program, you need to meet requirements set by the Federal Housing Administration and your FHA-approved lender.
FHA loans are typically available to those who meet the following qualifications:
- A credit score of 580 or higher (lower scores may be eligible with 10% down)
- A 3.5% down payment
- A debt-to-income ratio of 43% or less
- 1-2 years of consistent employment history (most likely two years if self-employed)
- A property that meets FHA standards or is eligible for FHA 203k financing
- A loan amount within 2023 FHA loan limits; currently $ in most counties
These are general qualifying guidelines. However, lenders often have the flexibility to approve loan applications that are weaker in one area but stronger in others. For instance, you might get away with a higher debt-to-income ratio if your credit score is good.
If you’re not sure whether you’d qualify for financing, check your eligibility with a few different mortgage lenders.
Many potential home buyers are FHA-eligible but don’t know it yet.
How does an FHA loan work?
FHA loans are a home buying program backed by the Federal Housing Administration.
This agency — which is an arm of the Department of Housing and Urban Development (HUD) — uses its FHA mortgage program to make homeownership more accessible to disadvantaged home buyers.
FHA does this by lowering the upfront barrier to home buying.
Reduced down payments and lower credit score requirements make homeownership more accessible to buyers who might not otherwise qualify for a mortgage.
Although FHA loans are backed by the federal government, they’re originated (‘made’) by private lenders. Most major mortgage providers are FHA-approved, so it’s relatively easy to shop around and find your best deal on an FHA mortgage.
If you have a sub-par credit score, low savings, or high levels of debt, an FHA mortgage could help you get into a new home sooner rather than later.
FHA loan limits for 2023
FHA has a maximum loan amount of $ for a single-family home in most of the U.S.
However, FHA loan limits increase in more expensive real estate markets and metro areas.
Single-family home loan limits
- Low cost area: $
- High-cost area: $
The FHA defines a low-cost area as one where you can multiply the median home price by 115% and the resulting price is less than $.
On the other hand, high-cost areas exceed $. In these cases, the maximum loan amount is $. About 65 counties in the U.S. have home purchase prices high enough to qualify as a high-cost area.
Many areas fall somewhere between the low- and high-cost ranges, with loan limits set accordingly.
Alaska, Hawaii, Guam, and the U.S. Virgin Islands are special exceptions and have loan limits capped at over $1 million.
Multifamily home loan limits
The Federal Housing Administration also finances mortgage loans for multi-unit properties.
|2-Unit Property||3-Unit Property||4-Unit Property|
Again these limits are higher in Alaska, Guam, and the U.S. Virgin Islands.
Even though the FHA allows multi-family home purchases, you must live in one of the units as your primary residence.
FHA mortgage FAQ
FHA sets loan limits for each county, which dictate the maximum amount borrowers can qualify for via the FHA program. Loan limits are higher in areas with high-cost real estate, and borrowers purchasing 2-4-unit properties can often get a larger loan amount than those buying single-family homes. Not all borrowers will qualify for the maximum loan size, though. The amount you can qualify for with FHA depends on your down payment, income, debts, and credit.
Home buyers must put at least 3.5 percent down on an FHA loan. That’s because FHA’s maximum loan-to-value ratio is 96.5 percent — meaning your loan amount can’t be more than 96.5 percent of the home’s value. By making a 3.5 percent down payment, you push your loan amount below FHA’s LTV threshold.
Unlike conventional mortgages, FHA loans do not waive mortgage insurance when you put 20 percent down. All FHA homeowners are required to pay mortgage insurance regardless of down payment — though if you put at least 10 percent down, you’ll only pay it for 11 years instead of the life of the loan. If you have 20 percent down and a credit score above 620, you’re likely better off with a conventional loan because you won’t have to pay for PMI.
Yes, you have to pay closing costs on an FHA mortgage just like any other loan type. FHA loan closing costs are close to conventional closing costs: about 2-5 percent of the loan amount depending on your home price and lender. FHA also charges an upfront mortgage insurance fee equal to 1.75 percent of the loan amount. Most borrowers roll this into the loan to avoid paying it upfront. But if you choose to pay upfront, this fee will increase your closing costs substantially.
A typical FHA loan payment includes principal and interest on the loan balance, mortgage insurance premiums, monthly homeowners insurance fees, and monthly property taxes. FHA homeowners in a condo or PUD will also have to pay homeowners association (HOA) dues every month.
That depends. FHA loans require mortgage insurance, which will increase your monthly mortgage payments. But so do conventional loans with less than 20 percent down. The cheaper loan for you will depend on your down payment and credit score; if you have great credit and 5 percent down or more, a conventional loan will likely have lower monthly payments. But if you have low credit and 3-3.5 percent down, the PMI on a conventional loan could be more expensive than FHA MIP. Talk to a lender to compare payment amounts and find out which loan is best for you.
Typically, the only closing cost that can be included in an FHA loan is the upfront mortgage insurance premium (upfront MIP). Most other closing costs, such as an underwriting fess or origination fees, will need to be paid out of pocket when purchasing a home or using the FHA Streamline Refinance program.
FHA mortgage rates are often lower than rates for conventional mortgages. However, a lower interest rate does not always equate to a lower monthly payment. FHA mortgage insurance will increase your payments and the overall cost of the loan, even if the base rate is lower than for other loan types. Looking at annual percentage rate (APR) can be helpful in determining the ‘true’ cost of a loan, since APR accounts for fees as well as interest.
No. FHA loan rates are not set by the government, and they are not consistent from one FHA loan to the next. FHA-approved lenders get to set their own mortgage rates, and some may have more affordable pricing than others. In addition, rates can vary by borrower, with the lowest rates often going to the ‘safest’ borrowers, and higher rates going to borrowers with lower credit and other risky loan characteristics.
Yes, most FHA-approved loan providers can both preapprove and prequalify you for an FHA home loan. Getting prequalified is a less rigorous evaluation of your financial status, while a preapproval will often require verifying financial details like credit score, debt-to-income ratio, and more. Typically, obtaining a preapproval letter from your loan officer will be of more value when house hunting because many sellers and real estate agents prefer to work with qualifying buyers.
FHA loans have a 210-day waiting period before refinancing into another FHA loan using a Streamline Refinance, or refinancing into a conventional loan to remove the monthly mortgage insurance. This waiting period is the same for VA loans, too. Whereas USDA loans have a 6-12 month waiting period, depending on the circumstances. There is no waiting period for refinancing a conventional conforming loan — unless you are tapping home equity with a cash-out refinance, which has a 6-month waiting period.
Check your FHA loan eligibility
Many home buyers qualify for FHA — they just don’t know it yet. Check with a lender to verify your eligibility and find out how much house you can afford via the FHA mortgage program. You can get started below.
2018 Freddie Mac Research on Consumers
By refinancing an existing loan, the total finance charges incurred may be higher over the life of the loan.