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What’s an FHA loan? It’s a mortgage backed by the Federal Housing Administration (FHA), which allows lenders to make loans with as little as 3.5% down payments.

The FHA loan calculator details costs and terms associated with FHA loans and with general home buying. Below are definitions for these expenses.

Down Payment

This is the dollar amount you put toward your home cost at closing. FHA loans require 3.5%. This can come from a savings account or as an eligible gift from a relative.

Interest Rate

The mortgage rate your lender charges. Check out Truity's current FHA rates.

Loan-to-Value (LTV)

The ratio of (mortgage loan balance)/(home value). As an example, a homeowner with a $200,000 mortgage loan balance and a home value of $250,00 has an LTV of 80%. LTV is a key factor in the mortgage approval process.

Homeowner's Insurance

Homeowner's Insurance is required to protect your home against loss from fire or other damages. You are allowed to pick the Insurance company. The annual premium amount will be divided into 12 monthly installments and added to your mortgage payment each month. When the 12 months have been collected, the lender will pay the annual premium to your insurance company.

Property Tax

The county or municipality in which the home is located charges a certain amount per year in taxes. This cost is split into 12 installments and collected each month with your mortgage payment. You can get an estimate of your possible property taxes based on tax-rates.org.

FHA Mortgage Insurance Premium (MIP)

FHA requires a monthly fee that is a lot like private mortgage insurance that is a type of insurance that allows borrowers to have smaller down payments and protects the lender. The FHA MIP rate is 0.85% of the loan amount per year, but can vary per year depending on your loan amount and down payment.

Upfront MIP

An upfront fee which is wrapped into the loan amount (not paid in cash). This allows FHA to offer lower down payments and more lenient qualifying standards.

Principal and Interest

This is the monthly amount due that goes toward paying off the loan balance plus the interest. This remains constant for the life of your fixed-rate loan.

FHA Loan Requirements

3.5% Down Payment

People with credit scores of at least 620 will only need a 3.5% down payment.

Employment

At least 2 years of consistent employment history.

Limit

There is a limit to the amount you can borrow. Check with your loan officer for the FHA loan limit in your county.

FHA Appraisal

A property that meets certain conditions and must be appraised by an FHA-approved appraiser.

MIP (Mortgage Insurance Premium)

Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront — or, it can be financed into the mortgage — and the other is a monthly payment.

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