FHA Affordability Calculator
How does the FHA loan affordability calculator work?
The FHA loan program makes home ownership more realistic for many homebuyers. While this should not be considered an FHA mortgage qualification calculator, home affordability from a lender's standpoint includes a borrower's debt-to-income (DTI) ratio. Depending on the homebuyer's credit rating and other characteristics, FHA loans can sometimes be approved with a DTI as high as 50%. Our FHA affordability calculator allows you to view a range of estimated home prices using different DTI ratios based on your income and monthly debt payments.
Updating the DTI used to calculate the estimated home budget will change the estimated monthly payment and recalculate the required FHA down payment. FHA loan requirements have a minimum down payment of 3.5% of the home's purchase price. Being able to afford the FHA down payment is as important as meeting the monthly FHA payment obligation. The results shown indicate a 3.5% down payment. To experiment with larger down payments and their impact on monthly FHA mortgage payments, use our FHA loan calculator.
FHA loan affordability must also account for the FHA mortgage insurance premium. FHA loans are available to so many homebuyers because FHA protects the mortgage lender in case of default. Therefore, a portion of every FHA loan payment goes toward insuring the loan. This mortgage insurance premium (MIP) can significantly impact affordability. FHA MIP on a $250,000 home is around $170 per month. Depending on your income, FHA MIP might affect your DTI enough to consider a lower purchase price.
What should my DTI be?
Every person, family, and homebuyer is different. There is no DTI that works for everyone, other than to say that lower is better.Every person, family, and homebuyer is different. There is no DTI that works for everyone, other than to say that lower is better. While not set in stone, the 31/43 roadmap established by FHA is a good place to start.
31 refers to your housing ratio, which is simply your total proposed monthly house payment (principal + interest + FHA MIP + property taxes + homeowners insurance) plus monthly HOA fees divided by your gross monthly income. Having a housing ratio (lenders call this your front-end ratio) of less than 31% is not mandatory, but it's a benchmark to consider when determining your price range.
The 43 in 31/43 is your DTI (lenders call this back-end) ratio. It is everything included in the 31% plus your total monthly debt payments. The more debt you have the larger the gap between your housing ratio and DTI. Having front-end and back-end ratios that are similar means you have managed your debt well.
When considering your DTI, it is important to understand your financial position and not use a firm DTI figure. A large family with thousands of dollars of monthly child care expenses may not be stretched with a 35% DTI mortgage payment, while a single person living a modest lifestyle may easily be able to handle one at 40%. The payment and home budget calculated using the FHA affordability calculator should be used as a guide. Consider the complete picture, which includes your DTI, lifestyle, monthly bills, and everything else, when determining your new home budget.
FHA Mortgage Rates & Affordability
FHA mortgage rates remain historically low, but what does that mean for FHA homebuyers? The interest rate on a mortgage directly impacts the monthly payment. The higher the interest rate, the higher the mortgage payment. However, the rate does not affect the payment and affordability as much as one might think. For example, a basic 30-year mortgage for $100,000 with a 4% interest rate has a principal plus interest payment of $477.42. Lowering the rate to 3.875% changes the payment to $470.23. That's $7.19 per month. While shopping for a low mortgage rate is important, small fluctuations in interest rates will have a minimal effect on FHA loan affordability.
Is there an FHA mortgage limit?
FHA loan limits vary depending on which state and county you are buying. Most counties across the country use the FHA base loan limit to determine the maximum FHA loan dollar amount. A home price above the county loan limit requires a larger down payment than the minimum 3.5%.
There are parts of the country where real estate values are higher, and FHA accounts for these counties by increasing the FHA mortgage limit. Knowing the FHA limit where you're searching can save you time and money. If your budget is higher than what FHA permits in a given area, you will have to consider a conventional loan.