Trying to figure out why your loan amount differs from what you calculated with no good explanation can be frustrating.
If you buy a home and subtract the down payment then the reamining amount should be your loan amount.
Not so fast! FHA loans have fees and allow some of these fees to be financed into your loan. This is why borrowers never have the sdame loan amount as their loan officer.
Best way to avoid frustration is with knowledge. This is how we calculate mortgage insurance (MI) on FHA loans to figure out a monthly MI payment.
What exactly is PMI or MI? You can view PMI a simple explanation for more clarification.
What you will need:
A standard calculator
A piece of paper/pen
A little patience
An understanding of MI factor
An understanding of UFMIP
Here is the formula -
Loan amount multiplied by to monthly MI factor divided by 12 equals your monthly MI payment.
MI factor is the number used to calculate the sum. FHA rules change but as of now these are the guidelines.
If you have a down payment less than 5% then your monthly MI factor is 1.15 If you have 5% or greater down payment your monthly MI factor is 1.10
UFMIP is a one time payment to FHA. It stands for Up Front Mortgage Insurance Premium. Easy way to think of it is similar to buying or leasing a car. You put a down payment and then have monthly payments. UFMIP is equal to 1% of the loan amount.
Hypothetical scenario:
Purchase price $300,000 - 3.5% down payment ($10,500) = $289,500 loan amount
Apply UFMIP - Loan amount $289,500 X 1% (2,895) = $292,395. This is your new loan amount with the UFMIP financed.
Base loan amount - $289,500 X 1.15. Divide by 12 = $277.44
The monthly FHA MI payment in this scenario would be $277.44 per month.
If the down payment is 5% or greater then use 1.10 instead of 1.15
Feel free to contact us with any mortgage related questions.
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I love the little patience addition to your list...I am going to forward this to a buyer client of mine who just asked me this
Great, simple explanation of the PMI calculation as it's just plain confusing, and the amount is ridiculous that it prices some people out of the price range they used to qualify for.
That's a great explanation of how an FHA mortgage payment is calculated, Nevin. I think a lot of people feel hidden fees have been added.