October 10, 2016
When preparing to fill out an FHA loan application, many borrowers wonder how much FHA loan they will be permitted to get, and whether they can increase that amount. The basic FHA loan rules in HUD 4000.1 state that the loan amount is determined by either the appraised value of the property or the asking price, whichever is lower.
Some want to know if they can get cash back on an FHA new purchase single family home loan, but the rules prevent a borrower from receiving cash back on new purchase loans except in the form of a legitimate refund. There are ways to increase the loan amount, however, that do not result in cash back to the borrower.
For example, the borrower who chooses to finance the Up Front Mortgage Insurance Premium (UFMIP) would learn that the base loan amount would be calculated, and then the amount of the UFMIP would be added after the fact.
Another add-on to FHA loan amounts may include the cost of repairs or corrections required by the FHA appraiser. In these cases, the lender would add those costs to the sale price of the home before calculating the mortgage loan amount. According to HUD 4000.1:
“A Mortgagee may add repair costs to the sales price before calculating the mortgage amount if:
- the repairs are required by the Appraiser to meet HUDs MPR;
- the repairs are paid for by the Borrower; and
- the sales contract or addendum identifies the Borrower as the partyresponsible for payment and completion of the repairs.
The maximum amount of repair costs that may be added to the sales price is the lesser of:
- the amount by which the value of the Property exceeds the sales price;
- the Appraisers estimate of repairs; or
- the amount of the contractors bid.”
The borrower can also get an add-on to the FHA loan amount for making energy efficient improvements to the home with an FHA Energy Efficient Mortgage. This permits the borrower and lender to work together to determine what upgrades may be necessary, determine the cost of the approved upgrades, and add that amount to the loan for the purposes of making those improvements only.
All add-ons to an FHA loan will increase the amount of the loan, the mortgage payment, and the long-term cost of the mortgage, so it’s very important to keep that in mind when trying to decide what to include.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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