One of the most important factors of buying a house is making sure the cost of the home fits within your monthly budget. Before you start browsing homes, it's important to determine how much you can afford to spend (and not how much the bank says you can spend, which is oftentimes significantly more). Here, we're showing you how to calculate your monthly FHA loan payment with PMI so you can determine if that amount will work with your budget.
Step 1: Calculate Your Down Payment
FHA loans require a minimum down payment of 3.5 percent. The amount you're comfortably able to put down on the home will affect how much home you can afford. If you can comfortably put down $5,500, for example, then you could afford a home up to $157,000. To calculate this, multiply your down payment amount by .035 to determine the highest price you can afford.
Step 2: Subtract Down Payment from Purchase Price
In the example above, you could afford a home with a purchase price of $157,000. To figure out the amount the loan will be, simply subtract the down payment from the purchase price. In this case, the loan amount would be $151,500.
Step 3: Calculate the Upfront Mortgage Insurance Premium
With FHA loans, you're required to pay an Upfront Mortgage Insurance Premium (MIP) along with annual mortgage insurance (which is paid monthly). The Upfront MIP is roughly 1 percent of the loan amount, or in this case, $1,515. To calculate this, multiply the loan amount by 0.01.
Step 4: Calculate Annual Mortgage Insurance
Take your base loan amount of $151,500 (the purchase price minus the down payment) and multiply by 0.85 percent, or 0.0085, which is $1,287.75 annually. Mortgage insurance is paid monthly, making the payment $107.31 per month (divide the annual amount by 12). To check your annual mortgage insurance percentage view our FHA mortgage insurance chart.
Step 5: Calculate Monthly Principal and Interest Payment
First, look at your loan term and your interest rate. Assuming a 30-year fixed-rate loan, you have a total of 360 mortgage payments (30 years times 12 months in a year). Your monthly interest rate is your rate divided by 12. Assuming an interest rate of 4.125 percent, your monthly rate is .04125 divided by 12, or 0.34375 percent. To determine the payment, use the following formula:
P = L[c(1+c)^n]/[(1+c)^n-1]
- P is the payment
- L is the loan value
- c is the monthly interest rate
- n is number of payments
In this example, the monthly principal and interest payment would be $734.
Step 6: Calculate Total Monthly Payment
Your total monthly payment is the principal and interest amount plus your monthly mortgage insurance, your property taxes and your homeowners insurance. Property taxes and homeowners insurance will vary depending on your location, but your monthly P&I payment plus your PMI, in this case, is $841.31.
Use Our FHA Loan Calculator to Simplify the Process
Don't feel like crunching numbers for an hour? No problem. LendingTree has you covered with our FHA Loan Calculator. To quickly see what your monthly payment would be, including PMI, just enter in the purchase price of the home, your zip code and your credit score. We'll calculate your payment for you within seconds so you can quickly determine how much home you can afford with an FHA loan.