FHA Mortgage Qualifier
Are you considering taking out a FHA loan? If so, use this calculator to see how much you'll need to have set aside as a down payment to complete the home purchase. This calculator will estimate your total closing costs along with the required upfront Mortgage Insurance Premium (MIP). You can use this calculator to determine the maximum FHA mortgage limit for a particular purchase, however to figure out the maximium amount for your state and count you should use the HUD website to see local limits. After determining local limits you can use the below calculator to figure your payments.
Current 30 YR Fixed FHA Mortgage Rates
The following table highlights locally available current FHA mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
Understanding FHA Home Loans
If you are shopping for a loan to buy a home, you may be considering an FHA loan. Available since 1934 through the Federal Housing Administration (FHA), which is a division of the U.S. Department of Housing and Urban Development (HUD), FHA loans have helped thousands of people buy homes across the U.S.
Understanding a little about how they work and how they compare to other loan types can help you to make a better decision in your mortgage selection.
What are FHA Loans?
FHA loans are loans that are mortgages partially insured by the federal government. It means, if you were to take an FHA loan and default on the payments, the lender would have less risk and assume less loss than they would with an uninsured or traditional home loan.
An FHA loan is not actually made with the government. An approved FHA lender funds the loan, adhering to the FHA guidelines. Your FHA loan agreement would be through the lender, not with the FHA, or HUD.
The FHA guides the requirements and the governs the rules about the loans, such as how they can be obtained and who can use them.
There are FHA loan specialists and counselors you can connect with directly through the HUD site. Do beware, there are many third-party groups that may try to lure you into their programs, which may not always be in your best interests. It is best to stay safe with government-related resources when getting started in the program.
How do FHA Loans Compare to Traditional Mortgages?
HUD claims that FHA loans will enable low down payments, low closing costs and easy credit qualifying for interested buyers. While this could be true in many cases, it is safer to view the features of each loan type in a comparison table to see how they stack up against each other.
|FHA Loan||Traditional Mortgage|
|2-year steady employment history||x||(varies by lender)|
|Legal in US (SSN, legal age, etc.)||X (though non-US citizens may have options)||(not required)|
|Minimum down payment of 3.5%||x||(varies by lender)|
|Down payment can be gifted 100%||x||If over 20% down, all can be gifted|
|Seller and Buyer must each absorb some closing costs||(either buyer or seller can absorb 100% of closing costs)||x|
|Mortgage payment with taxes and insurance must be less than 31% of total monthly income||x||(varies by lender)|
|Must be at least 2 years out of bankruptcy||x||(may not qualify for up to four years after a bankruptcy)|
|Must be at least three years from foreclosure||x||(may not qualify)|
|Must have a minimum credit score of 580||x||(requires minimum of 700)|
|Total monthly debt cannot be more than 43% of monthly income||x||(varies by lender)|
You can see in direct comparison the FHA loans seem to be much more lenient and straightforward in their requirements. But what does it really mean to an applicant?
Lower Credit Scores, Less Hurdles
One of the main attractions for many people, is that an FHA loan requires only a 580 credit score – while a traditional loan would need typically a minimum score of 700 or better. This allows many more people to qualify of course, but with it comes other, related benefits.
One such benefit is the reduction in the necessary down payment. While a traditional loan might have a down payment amount of 3%, or even nothing down, these types of deals will come with other balancing considerations. For example, a lender might offer no money down but then raise the APR 1-2 percentage points to recoup that loss. You would pay less initially, but more over time.
With an FHA loan, you don’t have to worry about such contingencies, as the down payment is a percentage set by the FHA. Likewise, there are looser restraints on how much of the down payment can come from gifts. An FHA loan allows for all of the down payment to be gifted, while a traditional loan would require at least 20% down to even consider the same thing. This makes a huge difference in the out-of-pocket costs of each loan at closing.
As you can see, the HUD claims of low down payments, less credit restrictiveness/easy qualifying and lower closing costs all seem to bear out as true. But there are other things to consider with FHA loans.
Must Be Residence, Other Stipulations
One aspect of an FHA loan to understand is that you cannot use them for investment properties. One rule HUD has continually enforced, is that the FHA loan must be for your primary residence. You can buy a multi-unit property such as a duplex or triplex, but you will have to live in one of the units.
You can also use an FHA loan for a rehab project, or a fixer-upper in which you live. You can borrow up to $50,000 for additional upgrades after you own the home. So, if you found a home for $125,000 needing some work, you could get an FHA loan for $175,000 to cover the repairs.
An FHA loan can be transferrable, unlike most traditional loans. This means if you decide to sell the property before the mortgage is complete, you can sell the actual mortgage to a new buyer – a traditional loan would require you to satisfy it in full. While it may not seem like a great distinction, this aspect alone can make a huge difference in an ability to sell a home quickly and on your own terms.
Note that with an FHA loan, you cannot finance your closing costs as you can with other loan types. However, the closing costs can be absorbed 100% by either the buyer or seller, which allows you to negotiate more robustly, and find a flexible answer when needed.
Are FHA Loans Right for Me?
While FHA loans may attract any type of home buyer, they tend to be most attractive to folks with more credit challenges. This is not to say only those with damaged credit, but also people who have not yet established a strong enough credit history are certainly ones who could benefit from the leniency of the FHA requirements. First-home buyers and younger people might benefit most from the flexibility.
Needing less money up-front and negotiating who absorbs closing costs are also attractive factors to many folks, as is the option to use gift money as a down payment. Do be aware that you will likely need to deposit up to three months of principal, interest, taxes and insurance (PITI) to show the lender you can make the payments. Often you will use an escrow account for this purpose.
About Mortgage Insurance
FHA loans require a special kind of insurance as well, which is different than the personal mortgage insurance (PMI) required for traditional loans. FHA loans require a monthly mortgage insurance premium (MIP) which is usually a little more expensive than PMI.
The MIP would be part of the escrow deposit required to close on an FHA loan. Paid up front, it is referred to as a UFMIP payment. It is currently set at 1.75% of the base amount. You would pay the UFMIP to close, then pay MIP every month onward.
With a traditional mortgage, PMI is not always required, depending on how much money the buyer puts down. If the buyer has over 20% of the loan’s value to put down at closing, they may be able to negotiate or even dispel the need for PMI. Not so with an FHA loan, which will always require a UFMIP to close, and ongoing MIP payments for most, if not all of the loan’s lifespan.
You will usually need to pay MIP for 11-to-15 years, or until your loan reaches a loan-to-value (LTV) ratio of 78% or more. Sometimes, you’ll have to pay it for the life of the loan. It also depends on how much your original LTV rate was, so it is best to consult with a professional to understand what to expect of your specific situation.
Basically, figure that MIP costs will add somewhere between another .45% and 1.25% for the term of an FHA loan. This will usually result in about $100-500 additionally per month to make the monthly payments.
Understand as well, that mortgage insurance only protects the lender, not you as the borrower. It is meant to protect the fact that you are using a smaller down payment to get into your mortgage, and the lender mitigates some of this risk by requiring MIP for about 11-15 years.
Is It Good to Switch From or To an FHA Loan?
As a borrower, you are going to always be seeking the lowest payments and the best interest rates available to you. Since many FHA loans go to people establishing or reestablishing their credit standing, as this standing becomes more secure it may make sense to refinance an FHA as a traditional loan.
- Lower APR: a traditional loan can typically offer better rates than an FHA
- Less, or no PMI: the cost of MIP can inspire many FHA loan holders to find a loan with lower PMI, or even none at all
- Can borrow more: traditional loans allow the borrower to get larger loans than an FHA
While all of these benefits can certainly save money for a loan-holder, be aware that a refinancing will carry its own set of new closing costs. You can count on costs ranging from 2-5% of your total loan, due when you sign the new paperwork. If you are lacking equity, you may also need to continue PMI as a lender protection which could add to your monthly payment.
It would not make much sense to convert a traditional loan to an FHA, as a traditional loan will generally offer better rates and terms. But using an FHA loan as a starter to help build credit and equity, and then later refinancing into a better loan with better terms is a smart and common move to make.
Can I Use FHA Loans for Refinancing?
Generally when homeowners refinance they typically switch out of FHA loans to conventional loans in order to remove the MIP expense.
Homeowners with poor credit scores may not be able to qualify for conventional home loans. They may be better off trying to refinance with an FHA loan though they should know that HUD lowered the loan-to-value (LTV) limit on FHA-backed cash out refinances from 85% to 80% on August 1, 2019.
FHA loans are and have long been a reasonable answer for those first-time home buyers, or people with credit challenges seeking a solid way to rebuild their way into home ownership. They have remained a mostly popular option throughout the years – because they are always dependable in what they offer.
Conventional or traditional loans can operate with more freedom, so they will tend to be the strategic move for most home owners over time. Often, a home buyer can leverage more money down to avoid PMI, and reduce their overall monthly payments with a traditional loan, but their immediate situation might not allow it to be. In these cases and so many more, an FHA loan can be the bridge that allows a serious homeowner to get into their home – while always building toward a better future.