Calculator results are rounded to the nearest whole dollar.
All new FHA borrowers pay a premium into an insurance fund that reimburses lenders when a borrower allows a foreclosure. The insurance fund and promise of repayment backed by the U.S. Government gives lenders the confidence to lend money to people who might not qualify for a conventional loan. There are two FHA mortgage insurance premiums new borrowers must pay. The first is a one-time, up-front premium. This is call the "Up-Front Mortgage Insurance Premium" (UFMIP). The second is the on-going, annual fee that's calculated every year. As your loan balance falls, the annual premium is recalculated and decreases.
The calculator above shows you how much your UFMIP will be, and how much you can expect to pay during the first year of your loan. As mentioned, expect your annual amount due to decrease with each passing year.
Example Where FHA Loan Allows Purchase of a More Expensive House
- Property Price: $160,000 for Conventional, $200,000 for FHA
- Down Payment Amount: 3.5% or 5%
- FICO Score: 675
- Buyer's Story: Jim and Lisa want to buy a $200,000 home for themselves and their 12-year-old daughter, but they've only saved about $8,000. Their seller is willing to cover closing costs to maximize their available cash. Their 675 FICO score means conventional lenders would charge a 2.25 percent risk-based adjustment and a 1.21 percent annual mortgage insurance premium.
- Key Factors in the FHA/Conventional Decision: FHA's 3.5 percent down payment gets them a $200,000 house, but 5 percent down on a conventional loan buys only a $160,000 home. In addition, FHA programs allow sellers to pay up to 6 percent of the sales price in closing costs, while conventional programs allow only 3 percent.
- Is FHA or Conventional the Right Choice? A willing seller could cover the upfront mortgage insurance, lender charges, discount points for a lower rate (3.5 percent for an FHA loan vs 3.25 percent for conventional financing), and other closing costs - up to $12,000 worth for a $200,000 house.
Here, the lower down payment and seller concessions make the FHA loan better for this family. Now let's look at an example where a conventional loan is better choice for the home buyer.
Example Where a Conventional Loan Is the Best Option
- Property Price: $200,000
- Down Payment Amount: 10%
- Credit Score: 699
- Buyer's Story: Jason, 38, is a first-timer looking for a $200,000 property. He expects keep the property "forever," turning it into a rental someday.
- Key Factors in the FHA/Conventional Decision: Jason's FICO score is a respectable 699. Conventional surcharges are 1.25 percent for borrowers in that range. FHA loans carry a 1.75 percent upfront MIP regardless of the borrower's credit score. Jason has $25,000 saved and is putting $20,000 down, so he can pay either upfront charge.
- Is FHA or Conventional the Right Choice? Because Jason can pay his upfront charges out-of-pocket, he won't require seller concessions, and he won't need to increase his loan amount or interest rate to cover the closing costs. Because of this, both loans have the same rate and amount. Annual mortgage insurance is lower for the conventional loan. In addition, FHA charges MIP for the entire term, while private mortgage insurance eventually drops off conventional loans. This is important because he plans to keep the home for the entire term of the loan.
Because of his credit score and down payment, Jason's upfront cost, monthly payment, and cost over the life of the loan are all lower with the conventional mortgage. Also, FHA mortgage insurance applies for the life of the loan. That's not the case for private mortgage insurance where it is cancelled when the home equity reaches a certain point. Now let's look at a situation where it's unclear whether an FHA or Conventional loan is the right choice.
Example Where the Best Option Is Unclear
- Property Price: $200,000
- Down Payment Amount: $10,000
- Credit Score: 638
- Buyer's Story: Clarissa, 25, is moving to take a new job and has saved $10,000 for a house in the $200,000 range. She expects to keep this home for three-to-five years.
- Key Factors in the FHA/Conventional Decision: Clarissa's credit history is minimal and her FICO is a modest 638.Conventional lenders will add 3.25 points in risk-based surcharges to her closing costs. With five percent down, she can't cover this charge, but can get a "no-cost" loan at a higher rate instead. Clarissa's private mortgage insurance premium will also be higher because of her FICO score - 1.37 percent per year for a 95 percent loan.
- Is FHA or Conventional the Right Choice? FHA's upfront MIP (which can be wrapped into the loan) is always 1.75 percent, and the annual MIP is .8 percent for most borrowers. Clarissa's offered a 3.25 percent FHA mortgage with 3.5 percent down, and a "no-cost" conventional loan at 3.85 percent.
For Clarissa, the FHA mortgage requires less money out-of-pocket and provides the lower rate and payment. According to MoneyGeek's calculator, the five-year costs are over $10,000 lower for the FHA loan.
Learn more about your FHA home loan options. If a conventional loan better fits your needs, MoneyGeek can help you learn more about this option, too.
<a href="https://www.moneygeek.com/mortgage/fha-loan/requirements/">FHA Loan Requirements</a>
Worried about qualifying for FHA financing? This "cut-to-the-chase" guide takes the guesswork out of applying for an FHA home loan. Compare your down payment, credit report, debts and income to the guidelines listed here to see where you stand
In addition, there are user-friendly tools to help you calculate your own debt-to-income (DTI) ratios. You'll see your FHA mortgage application through an underwriter's eyes, and get tips for improving your chances for loan approval.
Featuring assistance from MoneyGeek's expert advisors, it's like having an FHA "loan coach" working with you in the privacy of your own home.
Up for the challenge of a non-government home loan? Qualifying for conventional loans can be trickier than getting approved for FHA financing. Private mortgage lenders and insurers assume the risk when they loan to you, so their requirements are often more demanding.
Private mortgage insurance (PMI) is required for nearly all conventional loans with less than 20 percent down. PMI can cost more - or less - than FHA insurance.
The PMI calculator on this page tells you what your premium is likely to be, and demonstrates how changes in FICO score and down payment can affect your monthly PMI costs.
<a href="https://www.moneygeek.com/mortgage/fha-loan/limits/">FHA Loan Limits</a>
Congress created the FHA mortgage program to increase homeownership for those with moderate incomes, not to help millionaires buy mansions. There are limits to the size of loans the government will back, and these limits depend on median home prices in the property's county or metro area. Maximum loan amounts range from $314,827 to $726,525. Higher limits apply in Hawaii, Alaska, Guam and the USVI, and for duplexes, tri-plexes and fourplexes.
Don't know the FHA limits in your area? No problem - clicking the map on this page lets you easily find your 2019 maximum FHA loan amounts for your area.
<a href="https://www.moneygeek.com/mortgage/fha-loan/refinance/">FHA Refinance</a>
Thinking about refinancing an FHA home loan? There are three methods:
- A cash-out refinance of up to 85 percent of the home value
- A "streamline" limited cash-out refinance with an appraisal, which can allow you to roll refinancing costs into the new loan
- A "streamline" rate-and-term refinance without an appraisal - best if you're worried about having the home value, credit score or income needed to qualify for a traditional refinance
This helpful page details various FHA refinance requirements. It also offers an FHA refinance calculator, which analyzes loan costs and potential savings, helping you decide if refinancing is right for you.
<a href="https://www.moneygeek.com/mortgage/fha-loan/how-to-apply/">How to Apply for an FHA Loan</a>
Your mortgage application is the story of your financial life, and the better you are at telling this story, the higher your chance for loan approval.
This application "crash course" is the only guide you'll need to apply for an FHA home loan. By breaking down a complicated process into manageable, small phases, MoneyGeek makes it easy.
Step by step, you'll learn how to document your income, assets and other qualifications, and complete the mortgage forms.
You stay in your comfort zone, without the pressure of being in a lender's office, while experts walk you through the FHA application process.
<a href="https://www.moneygeek.com/mortgage/resources/first-time-buyers-guide/">First-Time Buyer's Guide</a>
According to Realty Today, seven of ten people surveyed claim that buying a house is as stressful as divorce. Luckily, you can relax if you have this guide on your side.
You'll find tools to determine if you're ready for homeownership, advice about closing costs and escrow, and a list of home buying mistakes to avoid.
This page covers the entire process, from the decision to buy a home to what happens at the closing table. Step-by-step instructions, including everything from mortgage pre-approval to finding a real estate agent, make it hard to go wrong, even if you're a real estate novice.