How the FHA Loan Calculator Works
An FHA loan is a mortgage insured by the Federal Housing Administration, a U.S. government agency. Because the government insures it, lenders accept smaller down payments and lower credit scores than for many other loans. In return, the borrower pays for mortgage insurance. The FHA Loan Calculator adds those insurance costs to the usual payment, so you can see what an FHA loan really costs.
What you enter
- Home price and down payment: the price, and the cash you put down.
- Credit score group: with a score of 580 or higher, the minimum down payment is 3.5%. With a score of 500 to 579, it is 10%. The calculator checks this.
- Interest rate and term: the yearly rate, and the number of years, up to 30.
- Property tax, home insurance and HOA fee: the other parts of the monthly cost of owning.
- Upfront insurance: whether you add it to the loan, which most borrowers do, or pay it in cash.
- Closing costs: a share of the price, for the cash needed at closing.
The two mortgage insurance premiums
Every FHA loan has both:
- Upfront premium (UFMIP): 1.75% of the base loan, charged once. Most people add it to the loan, so it is repaid with interest.
- Annual premium (MIP): a yearly percentage of the loan balance, paid in 12 monthly parts. The rate depends on the term, the loan size and the loan-to-value ratio (LTV): the base loan divided by the price.
The calculator uses these annual rates for base loans up to $726,200:
| Term | LTV | Annual rate |
|---|---|---|
| Over 15 years | 95% or less | 0.50% |
| Over 15 years | Over 95% | 0.55% |
| 15 years or less | 90% or less | 0.15% |
| 15 years or less | Over 90% | 0.40% |
Larger base loans pay a higher rate. Rates and rules change, so check hud.gov for the current figures.
How long the premium lasts
- If your down payment is less than 10% (an LTV above 90%), the annual premium lasts for the whole loan.
- If your down payment is 10% or more, it stops after 11 years.
This is a big difference from a conventional loan, where private mortgage insurance can usually be removed once you own 20% of the home.
The formulas
base loan = price - down payment upfront premium = base loan x 1.75% loan = base loan + upfront premium (if you add it to the loan) monthly payment = loan payment + property tax + home insurance + monthly mortgage insurance + HOA monthly mortgage insurance = average balance in the year x annual rate / 12
The loan payment uses the standard formula, where P is the loan, r is the monthly rate and n is the number of months:
loan payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
A worked example
You buy a $350,000 home with the minimum 3.5% down, which is $12,250. The rate is 6.5% for 30 years. Property tax is 1.1% a year and insurance is $1,500 a year.
| Step | Amount |
|---|---|
| Base loan ($350,000 - $12,250) | $337,750 |
| Upfront premium (1.75%) | $5,910.63 |
| Loan you repay | $343,660.63 |
| LTV and annual premium rate | 96.5% and 0.55% |
| Part of the first-year payment | Per month |
|---|---|
| Principal and interest | $2,172.17 |
| Property tax | $320.83 |
| Home insurance | $125.00 |
| Mortgage insurance | $153.87 |
| Total | $2,771.88 |
The cash needed at closing is $22,750: the $12,250 down payment plus 3% closing costs. Because the down payment is less than 10%, the yearly premium lasts for all 30 years. It adds up to about $36,300 over the loan, and the mortgage insurance falls slowly from $153.87 to a few dollars in the last year, as the balance shrinks.
Chart: what the first payment is made of
Loan payment ████████████████████████████████████████ 78% $2,172.17 Property tax ██████ 12% $320.83 Insurance ██ 5% $125.00 Mortgage ins. ███ 6% $153.87
What a bigger down payment does
With 10% down ($35,000), the base loan is $315,000 and the LTV is 90%. The annual premium is 0.50%, and it stops after 11 years. The monthly payment is $2,602.15 at first, and it falls to $2,471.69 when the insurance ends. Total premiums are about $15,987, compared with $36,296 with 3.5% down. A 15-year term has a higher payment, but a lower rate of insurance, and much less interest.
Good to know
- FHA loans have limits on the size of the loan, which vary by county. This calculator does not check them.
- The home must be your main residence, and it must pass an FHA appraisal.
- You can often refinance an FHA loan into a conventional loan later, when you have more equity, to get rid of the insurance.
- Gift money can often be used for the down payment. Ask your lender about the rules.
What this calculator does not include
- County loan limits, and special FHA programs such as 203(k) renovation loans.
- Adjustable-rate FHA loans, where the rate can change.
- The exact way HUD calculates annual premiums for each borrower. The calculator uses the average balance in each year as a close estimate.
- Changes in property tax and insurance over time.
This tool gives an estimate for general information only. It is not financial advice or a loan approval. FHA rules and rates change, so ask an FHA-approved lender for a real quote.