2023 Biden Administration Reduces Annual FHA Mortgage Insurance Premiums
FHA loans have become more affordable. In response to rising interest rates, HUD has lowered new FHA homebuyers' mortgage payments by decreasing annual mortgage insurance premiums by 0.30%.
Savings on FHA loans equates to approximately $25 per month for every $100,000 borrowed. For example, a $500,000 FHA loan is now close to $150 less per month than prior to the change.
Savings as generalizations and for demonstration purposes only.
FHA Mortgage Calculator Definitions
In addition to mortgage terms with which you are likely familiar, there are words and phrases specific to FHA loans.
Principal is your loan balance. The portion of your loan payment remaining after interest, taxes, insurance, and FHA MIP is applied to your principal balance.
Interest is the percentage of your loan amount that accrues over time for the privilege of borrowing money. Interest is included in your house payment.
FHA Interest Computation Example
principal balance * annual interest rate / 365 * days in period
$300,000 * 3.0% / 365 * 30 days = $739.73 monthly interest
FHA Monthly Escrow
Your escrow account is money set aside from your monthly mortgage payment to pay your annual property taxes and homeowner’s insurance. Those yearly amounts are divided by 12 and that figure is added to your FHA loan payment.
Real estate taxes are a substantial piece of your FHA mortgage payment. FHA requires your property taxes to be paid by your mortgage servicer.
Your property insurance must also be included in your FHA payment and paid by your servicer.
Both property taxes and homeowner’s insurance are referred to as “escrow” or “impounds” throughout the mortgage process.
FHA Mortgage Insurance Premiums
The FHA loan program is sustained by way of mortgage insurance premiums collected at loan inception and annually as part of your FHA loan payment. The two types of mortgage insurance are included on all FHA loans.
FHA Upfront Mortgage Insurance Premiums (UFMIP)
The first mortgage insurance premium is an upfront fee charge at loan inception. UFMIP is financed into your FHA loan and not required to be paid out of pocket.
UFMIP is calculated by taking the upfront premium rate and multiplying it by the FHA base loan amount.
$300,000 purchase price - $10,500 down payment = $289,500 base loan amount
$289,500 base loan amount * 1.75% (Current UFMIP rate) = $5,066 UFMIP
$5,066 UFMIP is added to $289,500 to establish your FHA loan amount of $294,566.
FHA Annual Mortgage Insurance Premium (FHA MIP)
The second FHA insurance premium is an annual fee paid monthly as part of your FHA loan payment. The premium is calculated from your annual average monthly FHA principal balance and is divided by 12 in order to evenly include it as part of your mortgage payment.
Accurately computing FHA MIP is complicated but our FHA loan calculator can be trusted to provide a reliable FHA mortgage payment.
Related: Removing FHA Mortgage Insurance
FHA Down Payment Requirements
FHA loans require a down payment of 3.5% of the home’s purchase price. The down payment does not include closing costs. To determine your required down payment multiply the price of the home by 0.035.
FHA loans are attractive to homebuyers because 3.5% is a relatively small amount when compared with their traditional 20% down payment conventional loan counterparts. While conventional loans are permitted with as little as 3% down, FHA loans can be more forgiving from a qualifying standpoint.
FHA Down Payment Gift
A wonderful FHA loan feature is the acceptance of gift funds that can be used to cover the homebuyer’s down payment and closing costs. FHA gifts must come from an approved source and must be “gifts” in the sense that they cannot be required to be paid back.
If saving for a down payment will consume too much time or is not realistic, FHA gift funds can be used to expedite homeownership as long as the funds come from a qualified donor.
It’s important to note that parties to the transaction, including real estate agents, builders, and sellers, are not approved to gift funds or equity when using an FHA loan.
Do I qualify for an FHA loan?
FHA loans are an option for first-time and experienced homebuyers. While credit standards and down payment requirements are not as stringent as a conventional loan, not everyone will qualify.
FHA guidelines are available via HUD’s website. However, sifting through them to find your particular situation can be overwhelming. A lot of factors go into whether or not a homebuyer qualifies for an FHA loan. As with all mortgage alternatives, obtaining a pre-approval is recommended.
What are FHA loan limits?
FHA loans are available in all 50 states, District of Columbia, and U.S. territories of Puerto Rico, Guam, U.S. Virgin Islands, American Samoa, and Northern Mariana Islands. FHA limits the amount you can borrow with an FHA loan depending on location. These FHA loan limits are updated annually and generally increase from year to year.
Loan limits are established by county, and an FHA loan cannot exceed the predetermined amount. If a home is being purchased and a 3.5% down payment results in a base loan amount above the county loan limit, the homebuyer must make an additional down payment to bring the FHA loan within the limit.
The majority of the FHA eligible areas have the same loan limit. However, in areas where home prices are higher, FHA loan limits are adjusted upwards. It’s important to know the county loan limit before you begin home shopping to avoid looking for homes that exceed your county’s maximum loan amount.
Using our FHA Loan Calculator
All mortgage calculators on whatsmypayment.com are engineered to provide the most accurate mortgage payment estimate as possible. The FHA loan calculator accounts for UFMIP, FHA MIP, required down payment, and the variances resulting in interest rate and loan term variables. Inputting property taxes and homeowner’s insurance results in the most accurate FHA payment calculations.
If you’re ready to move forward with an FHA loan or would like help deciding if FHA is right for you and your family, please use our mortgage selector to find an FHA approved lender.