How Much Home Loan Can I Afford To Borrow ? - FHA Mortgage Calculator
The Federal Housing Administration (FHA) is the government-insured loan program. It has observed a huge flow in loan applications, because of the recent narrowing of credit guidelines. Simultaneously, this program has been pushed into the spotlight, rolling from a 6% market share to over 40% of all residential mortgage originations. You can take benefit of the FHA loan opportunity and feel the difference.
FHA is only available for family-occupied residential properties, and not for commercial dwellings or real estate investment. Any person can take benefit of an FHA loan, and there is no limit to use this program. FHA mortgage loans are not to be utilized for high value homes, and the loan limits are variable depending on the area you reside in. The current FHA loan limits can go to the maximum of $750, 000 for a single family home.
If you have decided to buy a home, there is one very important thing you need to know; the government has provided a number of options to help you avoid going default on your mortgage payments. One of the most sure-shot options of this kind is the FHA loan.
FHA loans are simple mortgage loans but are insured by the Federal Housing Administration. It was introduced back in the 1930s when the rate foreclosure suddenly started to spike due to economic condition. The loan is approved only for lenders who are approved by the FHA after fulfilling certain criteria we will discuss later. The whole of the FHA loan is to reduce the risk of loss for the borrowers and in turn stimulate the housing market.
Supporting the feds in this aspect, we have introduced a calculator that helps analyze how much benefit you can expect from an FHA loan on a particular property. However, we before we explain that, let’s take a look at how FHA loan offers an advantage over regular mortgage.
What are the Benefits of FHA Loans?
The major advantage of an FHA loans is the eligibility criteria that are quite easy to qualify for. FHA loans have a very low down payment and people with low credit score have a probability to qualify even if they do not qualify for other such loans. Most commonly, FHA loan is a profitable and preferable option for buyers who are unable to afford the typical down payment that is usually around 20 percent. The current down payment on FHA loan is 3.5 but a calculator can help you find out the exact limit on a particular property you wish to buy.
Another fact that makes FHA highly safe in case the borrower is no longer willing or able to keep the house. Usually this is a situation that can lead to bankruptcy or foreclosure, but if you have an FHA mortgage, you can easily sell the house because the loan is ‘assumable.’ This means the buyer simply assumes the loan you have on your property.
Are there any Disadvantages?
Well, nothing is all perfect in this world and even in case of FHA loans that are created to help you, there are a few shady sides you must know about. Since it offers you so many benefits despite its lenient criteria, it requires two types of mortgage premiums. First one is pain in full up front and the second one is in the form of a monthly payment. The former can also be financed into the mortgage. Moreover, there is one more criteria that many borrowers and buyers may find a little difficult to fulfill. According to it, the property you are buying must meet a few conditions. In order to ensure this, an FHA-approved appraiser must visit and appraise the property.
FHA loans are made by lenders such as banks and other financial institutions, but they are insured by the federal government. Simply, the borrower has to meet certain eligibility requirements such as income proof, age, tax information etc. The down payment requirement is just 3.5%.
FHA down payment required - Percentage amount (minimum 3.5%) of cash is required to be paid as down payment without borrowing. The percentage amount is calculated on the basis of current sales price and other regulations. In case, the sales price is higher than the value assessed, the method of calculation of down payment is rather different. There is addition of assessed value and required amendment, multiplied by the percentage needed, and then they are added with the sales price and assessed value difference.
Contract sales price - Its’ the price that is rewarded for your home without the consideration of the closing costs of the contract.
Borrower - paid closing costs - This is the total amount of closing costs that have to be paid by the borrower. However, it is not calculated with the FHA down payment.
Necessary adjustments - This includes gift funds, higher than 3% of financing fees paid by the seller. The entire incentives are deductible from the current sales price. After these deductions, the down payments are calculated.
FHA home loan - This is the current market value of your home as appraised by the Federal Housing Administration (FHA).
Prepaid expenses, non-financeable repairs, MIP, and additional items - This includes all other items that are non-financeable by this type of mortgage. The calculation of closing cost is done by the addition of these values with the down payment.
How FHA loans are great for new or first-time homebuyers?
FHA loans are great because of the reduced down-payment. Also, 100% of the required funds can come in the shape of a contribution or gift. You parents or relatives may contribute the complete down-payment as a gift. This allows to get into a home with no cash spend out of your own pocket. There are certain other programs such as the FHA 203k loan program which permit certain borrowers to join for only a $100 down-payment. The most inclusive resource guide on how to acquire an FHA loan is found in the ABC's of FHA Lending program.
How can I get an FHA loan?
New or first-time homebuyers and other concerned borrowers who want to take advantage of FHA loan are required to do a little preparation prior to applying to an FHA lender.
List of items required for FHA loans:
- Easy qualifying requirements
- Less down payment, about three percent versus the standard twenty percent
- Offered for one to four unit properties
- Regulation of the closing costs handled by FHA
- Closing costs part of the definite loan
- Contributions in the form of gifts from parents or relatives to go towards the down payment
- Purchase of home can be made two years subsequent to filing a bankruptcy
- Purchase of home can be made three years subsequent to a foreclosure on another property
Determine and calculate the amount of house payment that you can easily manage to pay. According to FHA, the mortgage payment including principal amount, interest, insurance and taxes should be less than 31% of your gross monthly earnings.
Acquire a copy of your credit report from the national credit bureau, and cautiously analyze the information for accuracy. Prior to applying for the loan, fix all the errors.
Determine your local county loan limits by visiting HUD.gov. Simply click on the link of loan limit.
Contact experienced FHA lenders or brokers to learn more about the FHA loan program that is available in your area.
Popularity of FHA Mortgage calculator
FHA loans are the widely acclaimed mortgage programs in the country at the moment. Moreover, new and first-time homebuyers are rushing to take benefit of this program. No other loan programs are as advantageous as the FHA. The Federal Housing Authority (FHA) actually insures loans in order that the different lenders do not suffer any loss on account of inability of a borrower to pay back the mortgage loan. The possibility of any risk to the lender is thus reduced. The lender gets a better arrangement to offer potential homebuyers and the borrowers the opportunity to make lesser down payments, including elevated cost of closing a loan.
The participation of FHA in the dealing of mortgage loans makes it possible for most people to become a proud homeowner. They will be able to realize their reverie of possessing a true home for them. The FHA loans are available in the form of a fixed-rate mortgage and an adjustable-rate mortgage. They are principally good for buyers of their first property.
In order to qualify for an FHA insured loan, the borrower is required to apply to a HUD approved lender. The rules for an FHA insured loan are less stringent than for a straight loan. To calculate the exact figure, there is a formula. The ratio of housing is calculated by utilizing the monthly income as a base, and a borrower's monthly housing costs can be known. This monthly housing cost also includes the payment of mortgage, property taxes, and homeowner's insurance. It cannot go beyond 29% of this monthly income. The borrower's monthly expenses also include car loans and credit cards. However, this amount must not be in excess of 41% of the borrower's monthly income.
FHA Guidelines for Borrowers
The FHA (Federal Housing Administration) endows with mortgage insurance on loans provided by FHA-approved lenders. FHA insures all these loans on single and multi-family homes in the US. It has emerged as one of the largest insurers of residential mortgages throughout the world. Till date, it has provided insurance to millions of properties.
FHA Mortgage Insurance - FHA insured loans need mortgage insurance so as to protect lenders against losses resulting from defaults on home mortgages.
FHA Loan Limits - The lending limits may vary according to the kind of housing types, state and county in which they are situated.
Loan Checklist - Prior to initiating the loan process, you're required to prepare the loan application. Keep the entire information ready, and be organized to pay for property assessment and a credit report.
FHA Closing Costs - As per FHA, the closing costs are permissible as charges to the borrower. Other costs that are deemed realistic are determined by the local FHA office.
FHA Debt Ratios - FHA has put guidelines in place that necessitate borrowers to qualify as per the set debt to income ratios.
FHA Credit Issues - The past credit performance of an FHA loan applicant is examined. It helps to reveal good credit history and a good track record of well-timed payments.