When you use an FHA loan, you need to enter some expenses. Read on to have a complete knowledge about this.
An FHA loan is a specially designed home loan program that is backed by the Federal Housing Administration. However, it is not offered by the FHA, but by FHA-approved lenders. As the loan is insured by the government, this loan has a lenient requirement. So, borrowers can easily get approval.
But before you apply for the loan, you would like to know about your home affordability. This is where the importance of FHA loan calculator. With an FHA loan calculator Texas, you could know how much home you can afford with this loan. However, before you use this calculator, you need to familiar with a few expenses. Here are the ones -
- Principal and interest
It refers to the amount which goes toward paying off the home loan balance along with the interest due each month. For a fixed-rate loan, it remains the same for the life of the loan.
- FHA mortgage insurance
FHA needs a monthly fee that is a lot like private mortgage insurance. Known as FHA Mortgage Insurance Premium (MIP), this fee is a type of insurance, which protects lenders against loss in case the home buyer can’t make the payment. The FHA MIP rate is 0.85% of the loan amount per year. However, it can vary from 0.45% to 1.05% per year based on your loan amount, as well as down payment.
- Property tax
The country or municipality in which the property is located charges a certain amount per year in taxes. The cost is split into 12 installments and collected each month with your mortgage payment. Your lender collects the fee from you because the country can seize a home if property taxes are not paid properly. Based on averages, the calculator estimates property taxes.
- Homeowners insurance
Lenders need you to insure your home from fire and other damages. It is a collected with your mortgage payment, and the lender sends the payment to your insurance company every year.
Are you buying a condo or home in a Planned Unit Development (PUD)? Then, you may need to pay homeowners association (HOA) fees. Mortgage lenders factor in this cost when determining your ratios. You may put in other home-related fees such as flood insurance in this field, however, don’t include things like utility costs.
- Down payment
This is the amount you put toward your home cost. The minimum down payment requirement for an FHA loan is 3.5%. However, the higher the amount you can come with, the better it would be for you. You can either save the amount or ask for gift money from your relatives or opt for down payment assistance programs.
- Interest rate
It is the mortgage rate that you have to pay over the life of the loan. The lower the rate the more you can save. Higher credit score and decent down payments help you get the best rate. But the rate varies from lenders to lenders. So, shop for rates from different lenders and then make a decision.
- Upfront MIP
FHA needs an upfront fee that is wrapped into the loan amount. Just as monthly MIP, it insures lenders so they can approve loans at the lenient standards of FHA.
So now, use an FHA mortgage calculator to know your home affordability and apply for an FHA loan program to a reputable lender.