What’s included in my FHA Mortgage Payment?

An FHA loan is a type of mortgage that is insured by the Federal Housing Administration (FHA). This type of loan is popular among first-time homebuyers, buyers with lower credit scores, smaller down payments, or higher debt ratios. In addition to the principal and interest calculations that many online calculators provide, your monthly mortgage payment includes several components listed below.

1. Principal: The principal is the amount of the loan balance that you are paying off each month. This is the amount of money that you borrowed to purchase your home.

2. Interest: Interest is the cost of borrowing money and is based on the interest rate of your FHA loan. The interest rate on your loan will depend on several factors, including your credit score and the length of your loan term.

3. Mortgage Insurance Premium (MIP): Mortgage insurance is a fee charged by the FHA to insure the loan against default. This fee is required on all FHA loans and can be paid as an upfront premium at closing or included in the monthly mortgage payment. The MIP is calculated based on the amount of the loan, the length of the loan term, and the loan-to-value ratio (LTV).

4. Property taxes: Property taxes are a tax assessed by your local government based on the value of your property. Property taxes are typically included in the monthly mortgage payment and held in an escrow account by the lender. The lender then pays the property taxes on your behalf when they are due. FHA loans require your taxes to be included in the monthly payment.

5. Homeowner’s insurance: Homeowners insurance is insurance that protects your property against damage or loss. Homeowners insurance is also typically included in the monthly mortgage payment and held in an escrow account by the lender. The lender then pays the insurance premiums on your behalf when they are due. FHA loans require your homeowner’s insurance to be included in the monthly payment.

It is important to review your loan documents and speak with your lender to fully understand the breakdown of your monthly mortgage payment and it’s components (principal, interest, mortgage insurance premium, property taxes, and homeowners’ insurance). Understanding these components is essential for budgeting and managing your finances as a homeowner.