FHA Loan Calculator

FHA loans are government-backed mortgages insured by the Federal Housing Administration (FHA), the largest mortgage insurer globally. Established in 1934 during the aftermath of the Great Depression, the FHA’s primary goal is to promote homeownership across the United States. One of the key reasons FHA loans are so popular is their accessibility—they are designed to help a wide range of homebuyers, especially those with limited financial resources. It’s important to note that the FHA itself doesn’t issue loans; instead, it provides insurance for lenders in case borrower’s default.

Mortgage Insurance Premiums (MIP)

FHA loans require borrowers to pay both an upfront and annual mortgage insurance premium (MIP). These premiums are in place to protect lenders from potential losses if a borrower defaults. The upfront MIP is a flat 1.75% of the total loan amount and can be rolled into the mortgage. The annual MIP varies depending on factors such as the loan term, loan amount, and loan-to-value (LTV) ratio. The tables below show the 2025 FHA annual MIP rates.

2025 FHA Annual MIP Rates

Loan Term: More than 15 Years

Loan Term: 15 Years or Less

Benefits and Drawbacks of FHA Loans

Like any home financing option, FHA loans have their own set of pros and cons.

Advantages

• Low Down Payment Requirements: FHA loans only require a minimum down payment of 3.5%, making them ideal for first-time buyers and those with limited savings.

• Flexible Credit Score Acceptance: FHA loans are available to borrowers with credit scores as low as 580, or even lower in some cases.

• No Prepayment Penalties: You can pay off your loan early without facing extra charges.

• No Minimum Income Threshold: Qualification is based on the ability to repay rather than a specific income level.

• Higher Debt-to-Income Flexibility: In certain cases, borrowers can use up to 57% of their monthly income toward debt payments, which is significantly higher than many conventional loans allow.

• Lender Security: Since the loan is backed by the government, lenders have reduced risk and may be more willing to approve applicants.

Disadvantages

• Ongoing Mortgage Insurance Costs: FHA loans typically have higher insurance costs, and unlike conventional loans, the insurance can’t be canceled once you build 20% equity.

• Lower Loan Limits: FHA loans may not be suitable for those looking to buy high-value properties.

• Less Favourable for Excellent Credit: Borrowers with strong credit scores may find better interest rates with conventional loans.

• Property Restrictions: Homes must meet HUD’s health and safety standards to qualify for FHA financing.

• Perceived Stigma: Some sellers may be hesitant to accept FHA-financed offers due to stereotypes or additional inspection requirements.

Before choosing an FHA loan, it’s wise to compare all available options. If you have a large down payment or excellent credit, a conventional loan might be more cost-effective. Veterans and eligible service members should also consider VA loans.

FHA Loan and Home Affordability

The U.S. Department of Housing and Urban Development (HUD) establishes specific debt-to-income ratio rules for FHA loans to help assess borrower risk. Use our House Affordability Calculator to determine your budget. Choose the “FHA Loan” option under Debt-to-Income Ratio to see if it fits your financial profile.

FHA loans are known for strict front-end (31%) and back-end (43%) debt-to-income limits. However, HUD does allow lenders some flexibility if borrowers demonstrate strong compensating factors, such as:

• A higher down payment than the 3.5% minimum

• A solid track record of timely rent or mortgage payments

• Good credit history

• Substantial savings (typically three months of mortgage payments or more)

Making Extra Payments

FHA loans allow extra payments without penalties. If your finances permit, making additional payments can reduce your loan term and total interest. Our FHA Loan Calculator includes an “Extra Payments” section where you can enter one-time, monthly, or yearly additional payments to see how they affect your payoff timeline.

FHA 203(k) Renovation Loans

The FHA 203(k) loan is a unique program that lets borrowers finance both the purchase and renovation of a primary home—or refinance and renovate an existing property. It’s ideal for those looking to improve homes that need repairs or upgrades, all within a single mortgage.

Key details of FHA 203(k) loans:

• Designed for homes requiring repairs or remodeling

• Minimum loan amount is $5,000

• Renovations must be completed within six months

• Funds are placed in an escrow account and paid to contractors as work is done

• Temporary housing costs may be included for up to six months

There’s also a Streamlined FHA 203(k) option for smaller projects, offering simpler processing and faster approvals.