Taking the Guesswork out of FHA Mortgages: How the FHA Mortgage Calculator Can Simplify Your Home Buying Journey was written for Playlouder by a contributing author. Please note that contributing opinions are that of the author. They are not always in strict alignment with my own opinions. –Joe.
For many people finding amassing a down payment for a home purchase difficult, the prospect of getting a foot on the property ladder might seem remote. But that doesn’t necessarily have to be the case.
This alternative is the FHA mortgage.
What Is An FHA Mortgage?
FHA stands for Federal Housing Administration
An FHA mortgage is provided by a private lender but insured by the Federal Housing Administration and is backed by the federal government. It is designed to be an attractive and affordable option for less wealthy customers who meet the qualifying criteria.
Fundamentally, FHA home loans are distinguishable from other types of loans because they are available to applicants with lower minimum credit scores and smaller down payments.
These factors make them a popular option for first-time homebuyers who qualify for the terms and conditions. Still, they probably would not qualify for a conventional bank mortgage, given their financial circumstances.
While federal sources insure FHA loans, they are underwritten and administered by a third-party mortgage lender, but this is always a mortgage lender that has been vetted and approved by the FHA.
Who Is Eligible For An FHA Loan?
FHA mortgages are available to any borrowers with lawful permanent resident alien status, using the same terms and conditions as those for U.S. citizens.
There is also no maximum age limit for a borrower. The minimum age is the age for which a mortgage note can be legally enforced in the state, or other jurisdiction, where the property is located.
However, to qualify for FHA loans, the requirements that typically need to be met include:
- A FICO score of between 500 and 579 with 10% down, or a FICO score of 580 or more with 3.5% down.
- A verifiable history of employment dating back at least 2 years.
- A verifiable income that can be traced through paychecks, bank statements, and federal tax returns.
- Commitment to use the loan for a primary residence.
- Assurance that the property in question is appraised by an FHA-approved appraiser, along with meeting HUD guidelines.
- A front-end debt-to-income ratio of no more than 31% of monthly gross income.
- A back-end debt ratio of not more than 43% (in some cases, this figure can be anything up to 50%).
- A wait time of 1 to 2 years before applying for an FHA loan after filing for bankruptcy or 3 years after experiencing a foreclosure.
The Benefits Of Using An FHA Mortgage Calculator
Navigating all of the finer details of a financial product, like an FHA mortgage, can be overwhelming for the average person, especially if they are trying to avoid the potentially high lending fees of a mortgage broker.
An online FHA mortgage calculator has proven to greatly help folks understand the details of an FHA mortgage on their terms. This online tool can give people much more clarity and insight into what they might expect from an FHA mortgage based on their circumstances.
It is a simple tool that requires specific data input to spit out information to help you move forward with an application.
Some of the biggest benefits of using an FHA mortgage calculator include:
Monthly Payment Estimates
Using an FHA mortgage calculator can help you estimate your monthly mortgage payments, including principal, taxes, interest, and insurance.
This can be incredibly helpful for potential borrowers who aren’t great at long-term planning and want an accurate idea of what they can expect their finances to look like under an FHA mortgage scenario.
A Better Understanding Of Loan Affordability
An FHA mortgage calculator can help borrowers understand how much they will be able to afford based on all of the relevant financial factors of their personal situation and circumstances.
The calculator will ask you to input your income, expenses, and other important financial details into its system. You will then get an accurate estimate of the loan amount that might qualify you under the stated FHA guidelines.
Doing this helps people to determine a realistic budget for what their home purchase can be. It will help them avoid taking on a higher amount of debt than they can comfortably manage going into the future.
Different Loan Options Comparisons
A great use of an FHA mortgage calculator is to help users compare different loan options, including different loan terms (15 years, 30 years, etc), different interest rates, and different down payment amounts.
You can input different scenarios in the calculator to help you see how the different loan options might affect your monthly payments and overall costs for the duration of the chosen loan.
Doing this can help a potential borrower make a much more informed and researched decision when making a final choice on which loan option to proceed with. It will highlight the option that best fits your needs and your budget.
An Evaluation Of FHA Mortgage Insurance Premiums
FHA loans generally require the borrower to pay upfront mortgage insurance premiums (MIP), which will add to the overall cost of the total loan.
Using an FHA mortgage calculator can help a borrower understand the extent of their own MIP, based on the loan amount they have in mind, what their downpayment will be, along with several other things important factors.
Comparisons will be offered that detail different insurance requirements for different loan options.
Planning For A Downpayment
Although the key benefit of an FHA loan is that it doesn’t require as high of a downpayment as traditional loans, borrowers are still recommended to plan for such an expense.
An FHA mortgage calculator can help you determine the minimum downpayment figure based on your desired loan amount, giving you a good idea of how much you should start to save for when the time comes.
If you are an existing FHA borrower, then using an FHA mortgage calculator can still be helpful for you as it can be used to estimate any potential savings you might make if you choose to refinance.
You can use the tool to input the current details of your loan, your interest rates, and any other pertinent information. It will respond with a rundown of how refinancing might impact your monthly payments, overall loan costs, and potential savings over time.
Overall, we hope you can see how beneficial using an FHA mortgage calculator can be for potential homebuyers in determining whether or not an FHA loan might be the best option for them in their home-buying ventures.