FHA Mortgage Qualifier
Are you considering taking out a FHA loan? If so, use this calculator to see how much you'll need to have set aside as a down payment to complete the home purchase. This calculator will estimate your total closing costs along with the required upfront Mortgage Insurance Premium (MIP). You can use this calculator to determine the maximum FHA mortgage limit for a particular purchase, however to figure out the maximium amount for your state and count you should use the HUD website to see local limits. After determining local limits you can use the below calculator to figure your payments.
For your convenience current San Diego FHA mortgage rates are shown beneath the calculator.
Current San Diego 30-YR Fixed Mortgage Rates
The following table highlights current San Diego mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
An Introductory Guide to FHA Loans
Buying a home is a challenging affair, especially if you’re still building income. You may struggle with a low credit score and insufficient funds for down payment. Such is the case with first-time homebuyers who have a hard time qualifying for a traditional conventional loan.
But don’t fret. There are mortgage programs that provide low down payment options and relaxed credit standards. Even with a low credit score, you can still afford a home. One of these loan programs is backed by the U.S. Federal Housing Administration (FHA).
Our guide will discuss the basics of FHA loans and how you can use it to your benefit. We’ll compare it with conventional mortgages and talk about its pros and cons. By understanding your loan options, we hope this guide can help you achieve your homeownership goals.
What are FHA Loans?
FHA loans are mortgages sponsored by the Federal Housing Administration (FHA). They insure mortgages offered by FHA-sponsored lenders such as banks, mortgage companies, and credit unions. FHA loans are specifically geared toward low to moderate income borrowers who need assistance in obtaining a home.
FHA loans are a popular financing option for first-time homebuyers and borrowers with tight funds. They come with lenient credit standards, low down payments, and affordable closing costs compared to traditional conventional mortgages. FHA loans are commonly taken as 30-year fixed mortgages, but they are also available in 15-year and 20-year fixed-rate terms.
A Brief History of the FHA
The Federal Housing Administration (FHA) was first established under the National Housing Act of 1934. It was developed in response to widespread foreclosures during the Great Depression. Around 1933, between 40% to 50% of homeowners defaulted on their mortgage. To alleviate this problem, the FHA was created to improve capital flows throughout the housing market.
Prior to the Great Depression, most home loans came as adjustable-rate loans with a concluding balloon payment. Borrowers could only borrow 50% to 60% to finance a home. Mortgages were typically structured with 11 to 12-year amortizing loans, which were way shorter than today’s standard 30-year term. If the borrower could not afford the large balloon payment, they kept refinancing their loan to extend the term. This system made it difficult for borrowers to afford houses, which eventually lead to massive foreclosures.
With the FHA in place, mortgages were insured for at least 80% of a home’s value, with a 20% down payment. It also created extended terms and fixed rates to give ample time for buyers to pay their loan. These organized lending practices eventually improved the mortgage system. By 1965, the FHA became part of the U.S. Department of Housing and Urban Development (HUD).
Today, government-backed loans can provide financing with less than 20% down payment. Qualified borrowers who take FHA loans can put as low as 3.5% down on a home’s value. FHA loans are known for relaxed credit standards and affordable closing costs. Since 1934, the FHA has insured over 40 million mortgages.
Common FHA Loans Taken by Borrowers
The FHA provides a variety of mortgage programs that cater to different needs. Besides home purchase loans, they also offer home improvement and refinancing options (up to 80% loan-to-value ratio). The following are popular types of FHA loans taken by consumers:
203(b) Basic Home Mortgage Loan
The major lending program provided by the FHA is called the 203(b) Basic Mortgage Loan. This will be the main focus of our article. It was created to help consumers who are not eligible for traditional conventional mortgages. This loan option finances single-unit to four-unit housing, including condominium units and manufactured houses on real estate property. Borrowers are eligible for up to 96.5% financing with a 3.5% down payment on the home’s price.
Section 245(a) Graduated Payment Program
Borrowers with low salaries but are expecting to build their income can take advantage of the Section 245(a) Graduated Payment Program. This loan option allows you to organize how your payments will increase, giving you a feasible payment time. It features a growing equity mortgage that schedules recurring increases on your monthly principal payments. The program also allows you to pay off your mortgage a lot earlier. The higher extra principal payments you make, the sooner your can pay off your loan.
203(k) Rehab Mortgage Insurance Loan
Borrowers who need financing to purchase and renovate a home can take a section 203(k) rehab mortgage insurance loan. It can also be used to fund construction improvements on your existing property. To obtain this loan, the cost of the renovation must be at least $5,000, including full rebuilding and structural alterations. Apart from updating your property, you can also make energy efficient improvements. Moreover, it’s a viable loan option that can make your home more accessible to disabled family members.
FHA Energy Efficient Mortgage (EEM)
If you have an FHA-insured home, you are eligible for a loan under the EEM program. This program recognizes that energy efficient homes have significantly lower operating costs. Expensive monthly bills hinder a borrower’s ability to make timely mortgage payments. This can be a problem if you fail to pay off your mortgage. But with assistance from the EEM program, you can renovate your home to improve energy efficiency and reduce utility costs. Upgrades include new insulation, upgrading your home’s infrastructure, and even installing new solar panels. Consider this option to maximize your savings.
Home Equity Conversion Mortgage (HECM)
Borrowers who are 62 years old and above are qualified to take an HECM reverse mortgage. This allows you to tap home equity for up to a limited amount while maintaining your property title. Eligible properties include single-unit to four-unit houses as long as it’s their primary home. Condominium units and manufactured houses can also qualify if they satisfy FHA property safety standards. You can take the loan as a line of credit, a fixed monthly fund, or a mix of both.
FHA Loan Requirements
While applying for an FHA loan is more lenient than traditional conventional mortgages, you should still maintain a good credit record. FHA-sponsored lenders will review your employment background and credit history. If you’ve filed for bankruptcy in the past, you may still be approved as long as you’ve recovered a good credit score.
FHA loans also require property that meets approved safety standards. If you’re thinking of buying a fixer-upper, a strict appraiser might not readily approve your home for the mortgage. Be sure to choose a house that’s in fairly good condition to meet minimum property guidelines. This rule goes for both single-unit housing and multi-family housing. Finally, FHA loans can only be used for primary residences. These cannot be used for vacation homes or any type of investment property.
Finally, get ready with the following files for documentation:
- Social Security number
- Proof of U.S. citizenship
- OR Proof of legal permanent residency
- Employment records
- W-2 tax return form
- Bank statements in the last 30 days
- Pay stubs in the last 30 days
Comparing FHA Loans and Conventional Mortgages
To understand how FHA loans can benefit homebuyers, we must recognize its differences from traditional conventional mortgages. Generally, mortgage qualifications for FHA loans are easier for most borrowers. The following sections will compare different factors that impact both FHA and conventional loans.
FHA Loans: Borrowers are eligible even with a low credit score. You can qualify with a credit score of 500 provided you make a 10% down payment. If your credit score is 580, you can make a down payment as low as 3.5%.
Conventional Loans: Most conventional lenders prefer a credit score of 680 and above. The higher your credit score, the more favorable your rate. Conventional lenders may approve lower credit scores, but be prepared for much higher rates.
Save for a Higher Down Payment
Even with a 3.5% down payment option, consider saving up for a higher down payment. While it sounds convenient, a small down payment makes you borrow a larger loan amount. This generates higher lifetime interest costs. To boost your interest savings, consider gathering more funds for a down payment. If your parents or other relatives can give you cash gifts, you can use them to add to your down payment funds.
Debt-to-income Ratio (DTI)
Lenders evaluate your debt-to-income ratio (DTI) as a factor for creditworthiness and loan affordability. DTI ratio is a percentage that measures your monthly debt payments against your gross monthly income. A lower DTI ratio suggests you have enough money to afford mortgage payments. Meanwhile, a higher DTI ratio indicates you may not have enough income to take on more debt. Borrowers with high DTI ratios usually receive much higher rates.
Two main DTI Ratios:
Front-end DTI: The percentage of your income that pays for housing-related costs, including monthly mortgage payments, real estate taxes, mortgage insurance, etc.
Back-end DTI: The percentage that includes your housing-related costs together with all your debt obligations. It includes car loans, credit card debts, student debts, etc.
The required DTI limits vary for different types of mortgages.
FHA Loans: The front-end DTI limit for FHA loans is usually 31%, while the back-end DTI limit is 43%. However, with compensating factors such as a higher down payment, the back-end DTI can be up to 57%.
Conventional Loans: Most conventional lenders prefer a front-end DTI no higher than 28%. For back-end DTI, it should ideally be 36%. But depending on the strength of your credit profile, it can be up to 43%. Some conventional lenders also allow up to 50% back-end DTI with compensating factors.
FHA Loans: Interest rates are typically lower for FHA loans than conventional mortgages even if you have a low credit score. This makes it a cheaper, more practical choice for borrowers with limited funds. The low rate allows you to make cheaper monthly payments. However, as a compromise, you’re charged mortgage insurance premium (MIP), which is required for the entire 30-year FHA loan. This added premium makes your loan more costly as you build equity.
Conventional Loans: Conventional mortgage rates are largely influenced by a borrower’s credit score. A higher credit score makes you eligible for more competitive rates. Meanwhile, poor credit gets you a higher interest rate, which results in more expensive interest charges. Conventional loans require private mortgage insurance (PMI) if your down payment is below 20% of the home’s price. This is an extra cost that’s only charged for a limited time.
Improve Your Credit Score
Before applying for a mortgage or any loan, prioritize increasing your credit score. You can improve your credit score by paying bills on time, settling overdue debts, and keeping your credit card balances low. Paying off large, high-interest debts will also significantly improve your credit rating.
Get a copy of your credit report to review your financial background. To request a copy, visit AnnualCreditReport.com. Borrowers are allowed to obtain a free copy every 12 months. Check it for misinformation such as the wrong billing address or unrecorded payments. Disputing errors with your credit bureau will help raise your credit score.
Lenders may require mortgage insurance to protect them in case you default on your loan. It’s an added charge that only benefits your lender if you have trouble making payments. This varies depending on the type of loan.
FHA Loans: Borrowers are charged mortgage insurance premium (PMI) for FHA loans. This mandatory fee is paid both as an upfront mortgage insurance premium (UFMIP) and an annual MIP fee. The upfront MIP fee is 1.75% of your loan amount. For example, if you have a $240,000 loan, your upfront MIP will be $4,200.
Meanwhile, the annual MIP fee can be anywhere between 0.45% to 1.05% of your loan balance, which is usually around 0.85%. For instance, if your loan amount in $240,000 and your annual MIP is 0.85%, it will cost $2,040 a year, which is $170 per month. The annual MIP is rolled into your monthly payments and is required for the entire life of a 30-year FHA loan.
FHA-sponsored lenders determine MIP based on loan-to-value ratio (LTV). LTV ratio measures the size of your loan relative to the value of your property. Borrowing a higher loan amount increases your LTV ratio, which puts more risk on lenders. Thus, a higher LTV results in higher annual MIP.
The following table lists 2021 MIP rates for different LTV ratios.
MIP Rates FHA Loans Up to 15 Years
For homebuyers who take 30-year FHA mortgages or any loan longer than 15 years.
|Base Loan Amount||LTV||Annual MIP|
|≤ $625,500||≤ 95%||80 bps (0.80%)|
|≤ $625,500||> 95%||85 bps (0.85%)|
|>$625,500||≤ 95%||100 bps (1.00%)|
|> $625,500||> 95%||105 bps (1.05%)|
MIP Rates for FHA Loans Up to 15 Years
Borrowers who can afford to take a 15-year term or pay for their mortgage earlier are offered lower MIP rates.
|Base Loan Amount||LTV||Annual MIP|
|≤ $625,500||≤ 90%||45 bps (0.45%)|
|≤ $625,500||> 90%||70 bps (0.70%)|
|> $625,500||≤ 78%||45 bps (0.45%)|
|> $625,500||78.01% to 90%||70 bps (0.70%)|
|> $625,500||> 90%||95 bps (0.95%)|
Length of Time Borrowers Pay for MIP
Borrowers who took their FHA loans after June 3, 2013 should pay MIP within the following number of years:
|Term||LTV||Before June 3, 2013||After June 3, 2013|
|≤ 15 years||≤ 78%||no annual MIP||11 years|
|≤ 15 years||78.01% to 90%||canceled at 78% LTV||11 years|
|≤ 15 years||> 90%||loan term||loan term|
|> 15 years||≤ 78%||5 years||11 years|
|> 15 years||78.01% to 90%||canceled at 78% LTV and 5 years||11 years|
|> 15 years||> 90%||canceled at 78% LTV and 5 years||loan term|
Refinancing to Remove MIP
Lifetime annual MIP on 30-year FHA loans make mortgage payments more expensive. This cancels any savings from affordable monthly payments. To eliminate this extra cost, FHA borrowers have the option to refinance into a conventional mortgage. FHA borrowers who want to shift to a conventional mortgage must have a loan-to-value ratio of at least 80% and a credit score of 620. Besides removing MIP, refinancing is ideal if you can significantly reduce your rate 1% to 2% lower than your original rate.
Conventional Loans: Private mortgage insurance (PMI) is only required for conventional loans if you make a down payment below 20% of the home’s value. This is rolled into your monthly payments, which costs between 0.25% to 2% of your loan amount annually. But unlike MIP, private mortgage insurance is automatically removed once you gain 22% equity of your home, which is a loan-to-value ratio of 78%. Thus, to avoid the added mortgage insurance, consider saving up for a 20% down payment.
FHA Loans: Note that FHA loans require a limited loan amount for borrowers. These loan limits are based on the county of residence and the size of the property you’re buying. It’s also 65% of the current national conforming limit for homes.
FHA loan limits are classified into different areas. Low-cost areas have lower limits called the floor, while high-cost areas have higher limits referred to as the ceiling. There are also special exception areas which come with expensive construction costs. These special exception areas include Alaska, Hawaii, Guam, and the U.S. Virgin Islands. But for all the other areas, the conforming loan limit is 115% of the median home price in the country.
As of 2022, FHA loan limits for single-unit houses are $420,680 for low-cost areas, $970,800 for high-cost areas, and $1,456,200 for special exception areas. The following chart lists 2022 FHA loan limits for different housing types.
2022 FHA Mortgage Limits
|Housing Type||Floor, Low-cost Areas||Ceiling, High-cost Areas||Special Exception Areas|
To determine the FHA loan limit in your area, you may visit the HUD mortgage limits page.
Conventional Loans: Technically, you can borrow any loan amount with a conventional lender as long as you qualify for the amount with a strong credit profile. But if you need to borrow a particularly expensive loan, you must look for a specific type of conventional lender. There are two main types of conventional loans: conforming conventional loans and non-conforming conventional mortgages also called jumbo loans.
Conforming conventional loans follow the conforming loan limit assigned by the Federal Housing Finance Agency (FHFA). This limit is adjusted annually to reflect changes in market prices. If your mortgage falls within this limit, your loan is secured by Fannie Mae or Freddie Mac. For example, if the baseline loan limit for your area is $647,200, and your loan amount is $620,000, your mortgage is secured as a conforming conventional loan. Note that conforming limits for high-cost areas is 50% higher than the baseline limit. For an updated list of conforming loan limits, go to the FHFA site.
Meanwhile, jumbo loans exceed the conforming limit. These loans cannot be bought or guaranteed by Fannie Mae and Freddie Mac. If you’re buying an expensive home that’s over the loan limit, you must find a jumbo loan lender. Jumbo loans are used by high-income borrowers to buy luxury property in affluent areas. To secure a jumbo loan, you must have a high credit score of 700 above, a larger down payment, and plenty of savings. Because of the expensive loan amount, expect jumbo loan lenders to be stricter with credit qualifications.
The following chart lists the conforming loan limits for different housing types.
2022 Conforming Loan Limits
|Housing Type||U.S. Baseline, Low-cost Areas||Designated High-cost Areas||Special Exception Areas|
To summarize the differences between FHA loans and conventional mortgages, we created the table below.
|Requirements||FHA Loans||Conventional Loans|
|Credit Score||580 – ideal credit score 500 – minimum credit score||700 & above – preferred by lenders |
680 – usually approved by lenders
|Rates||Rates start low even if you have a low credit score |
Rates increase over time as you build home equity
|High credit score – lower rate |
Low credit score – higher rate
A high down payment reduces your rate
|Front-end DTI||Should not go over 31%||Should not go over 28%|
|Back-end DTI||Typically up to 43% |
Up to 57% with compensating factors
|Typically up to 36%|
Can be up to 43%
Up to 50% with compensating factors
|Down payment||3.5% if your credit score is 580 10% if your credit score is 500||20% – lets you avoid PMI |
10% – the average down payments
3% – minimum for a 97-3 loan
|Loan limits||The FHA requires specific loan limits depending on your county and type of property.||Conventional conforming loans follow loan limits prescribed by the FHFA. |
Loans that exceed the conforming limit are secured as non-conforming conventional loans or jumbo mortgages.
|Mortgage insurance||Upfront MIP is 1.75% of the loan |
Annual MIP is 0.45%-1.05% of the loan
MIP is required for the entire life of 30-year FHA loan
|PMI is 0.25%-2% of the loan |
PMI is canceled once LTV ratio reaches 78%
Consider the Disadvantages
There’s a trade-off to the low FHA down payment and relaxed credit requirements. As you’ve noticed, mortgage insurance premium (MIP) is an extra fee. MIP gets costlier the longer you pay for your loan. For this reason, some FHA borrowers eventually refinance into a conventional loan to eliminate MIP.
FHA loans also follow required loan limits. This is based on the location of your property, with low-cost areas having a lower limit. If you’re looking to borrow an expensive loan amount, this type of mortgage might not work for you. Next, you should think about minimum property standards imposed by the HUD. If you’re trying to get an old house approved, you might have a hard time with a strict appraiser. Finally, you can only take an FHA loan if you’re using the house as a primary residence. It’s not eligible for rental property or vacation homes.
The following chart details the benefits and disadvantages of taking an FHA loan.
|Borrowers can qualify with a low credit score.|
Offers a low down payment option.
|Can only be used for primary residences.|
|Borrowers can qualify with a high DTI ratio of 43%. |
Can be up to 57% with compensating factors.
|FHA loans require a loan limit. |
The loan limit is lower for conforming conventional mortgages.
|Applies to different housing types, |
from single-family to multi-family homes.
|Requires strict minimum property standards.|
Makes it hard to approve older homes.
|High-income borrowers with low credit scores|
may qualify and make a minimum down payment.
|MIP is mandatory for 30-year FHA loans,|
which is removed if you refinance to a conventional loan.
|Low mortgage insurance for low credit score borrowers |
versus conventional loans with higher PMI for low credit score borrowers.
|MIP becomes costlier the longer you pay your mortgage. |
Meanwhile, PMI is removed once you’ve gained 22% equity of your home.
Estimating FHA Mortgage Costs
FHA loans are an attractive option for first-time homebuyers because of the affordable down payment. But before you decide to make a small down payment, let’s see how it affects mortgage costs. Suppose you’re buying a house priced at $280,000 and you’re taking a 30-year fixed-rate FHA mortgage at 3.5% APR.
Your credit score is 580, which means you can make a 3.5% down payment. The following table shows differences in mortgages costs if you pay 3.5% down versus 10% down.
30-year fixed FHA loan
House price: $280,000
Interest rate: 3.5% APR
Annual real estate taxes: $2,400
Annual homeowner’s insurance: $1,000
Monthly HOA fees: $100
3.5% Down payment: $9,800
10% Down payment: $28,000
|FHA Loan Details||3.5% Down Payment||10% Down Payment|
|Upfront MIP fee||$4,728.50||$4,410|
|Monthly principal & interest payment||$1,139.17||$1,062.44|
|Monthly taxes, insurance, & MIP||$574.72||$551.33|
|Total monthly mortgage payment||$1,713.90||$1,613.77|
|Total Interest costs||$139,902.68||$130,479.18|
According to the example, if you pay 3.5% down, your loan amount will be $270,200. Meanwhile, if you pay 10% down, your loan amount will be reduced to $252,000. The higher loan amount results in higher payments for the upfront MIP fee, total monthly mortgage, and total interest charges.
With 3.5% down, your upfront funding fee will be $4,728.50. But with 10% down, your upfront MIP will be $4,410, which is lower by $318.50. When it comes to total monthly mortgage payments, it will be lower by $100.13 if you pay 10% down.
However, notice the big difference when we compare total interest costs. With 3.5% down, your total interest charges will be $139,902.68. On the other hand, with 10% down, your total interest costs will be reduced to $130,479.18. In this example, you’ll save $9,423.50 over the life of the loan if you make a 10% down payment.
This example shows making a higher down payment will help boost your mortgage savings. Even with limited income, aim to save as much down payment as you can for more affordable monthly payments. If you’re worried about the extra cost of MIP, you can eventually refinance into a conventional loan after a couple of years. You can qualify for refinancing if you’ve gained at least 20% equity of your home and a credit score of at least 620.
FHA loans are often marketed as mortgage options for borrowers with low credit scores and limited incomes. It’s an attractive financing tool for first-time homebuyers looking for an affordable down payment option. Borrowers can qualify with a credit score as low as 500. But as a trade-off, they are required to make a 10% down payment. Meanwhile, borrowers with a credit score of 580 are entitled to make a 3.5% down payment on an FHA loan.
Despite the relaxed credit standards and low down payment, it comes with a primary drawback. 30-year FHA loans require mortgage insurance premium (MIP) for the entire life of the loan. This added cost makes monthly payments more expensive the longer you pay for your mortgage. This cancels any savings you make from affordable monthly payments.
On the other hand, conventional mortgages only require private mortgage insurance (PMI) if you pay below 20% of the home’s price. PMI is automatically canceled once your loan-to-value ratio reaches 78% of the home’s value. To remove MIP, FHA loan borrowers eventually refinance into a conventional loan to boost their mortgage savings.
San Diego Borrowers: Are You Unsure Which Loans You'll Qualify For?
We have partnered with Mortgage Research Center to help San Diego homebuyers and refinancers find out what loan programs they are qualified for and connect them with San Diego lenders offering competitive interest rates.