How to Calculate Mortgage Insurance on an FHA Loan
The Federal Housing Administration (FHA) has always needed mortgage insurance to the mortgage loans it insures. The objective of the insurance is to protect the lender. If the borrower defaults on his loan, the creditor may file a claim contrary to FHA’s insurance fund and regain losses against the foreclosure process and reduction of their loan. There are two calculations for FHA’s mortgage insurance: a upfront insurance premium that is usually financed, and also a monthly premium.
Calculating FHA’s Monthly Premium
Determine the right loan amount. Having a sale price of $100,000, for instance, subtract the deposit of their minimum required 3.5 percentage. That is, $100,000 minus $3,500 yields a loan amount of $96,500.
The initial calculation is for the up front mortgage insurance premium. Multiply the amount of the loan by 2.25 percent. Example from above: $96,500 multiplied by .0225 equals $2,171.25. This is added into the amount of the loan, which makes the loan amount 98,671.25). The loan is rounded down to to $98,650 and the strange sum of $21.25 would be accumulated by the borrower at the final. .
To calculate the monthly sum, the loan amount of $98,650 is multiplied by .0055, yielding $542.58. Then divide this annual amount by 12 months and you get $45.21, which can be added to the monthly payment of principal, interest, taxes and homeowners insurance.