VA Loan Answers: The Difference Between “Maximum Loan Amount” and “Maximum FHA Loan Guaranty”
There is a commonly asked question about FHA loans that pertains to the amount of loan a borrower is eligible to apply for; what is the FHA maximum loan amount?
There is no set, across-the-board limit for an FHA mortgage. Instead, the loan amount is determined in part by the appraisal and in part by the FHA mortgage guaranty limits for that county. Those limits are not on the actual amount the loan is for, but rather for the amount the FHA will insure.
According to FHA loan rules in HUD 4155.1, “The maximum mortgage amount that FHA will insure on a purchase is calculated by multiplying the appropriate loan-to-value (LTV) factor by the lesser of the property’s
• sales price, subject to certain required adjustments, or
• appraised value.”
The same section of the rulebook adds, “In order for FHA to insure this maximum loan amount, the borrower must make a required investment of at least 3.5% of the lesser of the appraised value or the sales price of the property.”
So what is the difference between the maximum loan amount and the maximum VA loan guaranty amount?
The maximum loan amount is based on the price of the home as determined above, but also includes any allowable add-ons to the loans where permitted. If you are permitted to include points or costs into the loan, the amount would increase to accommodate those add-ons. But the maximum FHA loan guaranty–the amount the FHA will insure–is fixed as described above.
You and the lender may agree on an amount higher than that of the FHA maximum loan guaranty, but in such cases you may be expected to pay more up front or make a larger down payment. Discuss these options with your loan officer to learn more.
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