With over three years of experience writing in the housing market space, Robin Rothstein demystifies mortgage and loan concepts, helping first-time homebuyers and homeowners make informed decisions as they navigate the home loan marketplace. Her work.
Robin Rothstein Mortgages and Loans WriterWith over three years of experience writing in the housing market space, Robin Rothstein demystifies mortgage and loan concepts, helping first-time homebuyers and homeowners make informed decisions as they navigate the home loan marketplace. Her work.
Written By Robin Rothstein Mortgages and Loans WriterWith over three years of experience writing in the housing market space, Robin Rothstein demystifies mortgage and loan concepts, helping first-time homebuyers and homeowners make informed decisions as they navigate the home loan marketplace. Her work.
Robin Rothstein Mortgages and Loans WriterWith over three years of experience writing in the housing market space, Robin Rothstein demystifies mortgage and loan concepts, helping first-time homebuyers and homeowners make informed decisions as they navigate the home loan marketplace. Her work.
Mortgages and Loans Writer Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Updated: Sep 6, 2024, 8:30am
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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.
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 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.
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.
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.
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:
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.
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.
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.
Closing costs for FHA loans generally range between 3% and 4% of the purchase price. Closing costs include various processing and lender fees.
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.
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.
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.