The Federal Housing Administration (FHA) is a government insured loan program designed to offer mortgage insurance to people who may not otherwise be able to get a mortgage through normal lending channels. There are many rules in place that mean that this type of loan can only be offered to certain people and for certain property types. Using our FHA calculator will allow you to see if you qualify and how much you can afford under this scheme. It can tell you the maximum amount you will be able to borrow using your details and those of the State you live in.
Why lenders like the FHA loan
Because this loan is government-backed, it means that there is a reduced risk of loss for the lender and the borrower. In the years following the subprime lending scandal, this type of loan has become very popular, giving banks a way to feel more secure when offering mortgages to those people who are a higher risk. However, interest rates and insurance payments make FHA mortgage payments more expensive then the payments on a fixed rate or adjustable rate mortgage.
Why FHA loans are a good idea
The FHA will guarantee to your bank that if you fail to pay your mortgage, they will pay it instead. Lenders are therefore able to offer larger loans to their customers than they would previously. They may also offer improved interest rates.
Taking out a loan with FHA backing can mean that people can afford to buy a home with a small down payment, stimulating the housing market and creating a buoyant market that increases house prices. This down payment can be as low as 3.5%, and there are more generous rules regarding closing costs for the buyer, allowing some of the loan to go towards those costs and making it easier to get the property you want.
In some cases this credit can also be passed on to the next buyer of your home, allowing them to benefit from your low-interest rates. The money can also be used for home improvements.
If you have a poor credit rating or have experienced bankruptcy, you will be pleased to know that an FHA backed loan may be available to you.
● Your mortgage application must be made through an FHA approved lender.
● Your mortgage must be for a family home situated within the US.
● The FHA has a maximum amount that it will insure and this amount depends on the state you live in and the type of home you are buying. They are also influenced by the loan limits set by Freddie Mac and Fannie Mae.
● Whether you are able to afford the mortgage will be taken into account and this is done by setting a debt to income ratio which is usually less than 55% once the mortgage payments have been taken into account. Your previous credit history and bank account history will also be taken into account.
● There are no income limits, but these loans are designed for those on lower incomes.
● You will pay an upfront fee of 1.75% and an ongoing fee to cover this insurance. In some cases this fee structure can mean that you are paying more than taking out a standard mortgage.
Using the FHA Maximum Financing Calculator
The FHA calculator will require you to input some details regarding your finances and will use the current regulations surrounding FHA loans to offer you an indication of how much you will be able to borrow. This will allow you to decide if this type of loan will work for your needs. You may find that it is necessary for you to save more deposit or that you may need to find a smaller or cheaper home.
1. You will need to input the Contract Sales Price – this is the amount you will be paying for the home without any fees. Any Borrower-paid Closing Costs are also taken into account, but do not usually count towards the required down payment. The Statutory Investment Percentage tells you how much you will need to pay in advance to get the loan. The final part of this section makes an adjustment for the Appraised Value of the Home. This is because the lender may appraise the home as being worth more or less than the contract sales price.
2. To the right is the calculation based on the figures you have inputted. The Maximum Mortgage is calculated after on all adjustments and down payments have been taken into account. However as you can see below, there is more information needed.
3. If you live in a State that offers lower than average closing costs, you should tick the box at the top of this box. Underneath are other fees and costs that you may need to pay. These include Prepaid expenses, Discount points, Repairs/Improvements that the loan will be intended to cover, MIP paid in cash, Non-realty, and other items.
4. Once these are taken into account the final Maximum Mortgage after Reduction is displayed to the right side of the calculator. This total is also shown as a graph for a visual representation of the total amount of your mortgage.
Your maximum FHA mortgage results
The bar graph below the information inputs provides the visual representation of the total mortgage you may qualify for.
Even if you have had trouble with credit in the past or you are on a low income, it is still possible to buy your own home using an FHA insured mortgage lender. You can take advantage of the help offered to you by the government and enjoy benefits such as lower interest rates and higher loan values.
Our calculator offers you a way of seeing how much you might qualify for and discover if you need to save more money or if you can immediately start searching for your perfect home.