October 26, 2016
FHA home loans feature a maximum loan amount that varies depending on the housing market and other factors. There’s no single set dollar amount that establishes a limit for how much loan the FHA will guarantee, though many housing markets do feature the same general FHA loan limit based on calculations made on a yearly basis.
The reason a specific loan limit dollar amount cannot be given is because FHA loan limits are also affected by the loan-to-value (LTV) ratio which may vary in each transaction. This ratio is basically a calculation of the percentage of the loan satisfied by the down payment. With a typical FHA single family forward mortgage, the LTV is 96.5% based on a minimum down payment of 3.5%.
HUD 4000.1 discusses maximum mortgage loan amounts in HUD 4000.1, which opens the section by explaining, “A Mortgage that is to be insured by FHA cannot exceed the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio. The maximum LTV ratios vary depending upon the type of Borrower, type of transaction (purchase or refinance), program type, and stage of construction.”
HUD 4000.1 also adds, “Under most programs, the maximum Mortgage is the lesser of the Nationwide Mortgage Limit for the area, or a percentage of the Adjusted Value.”
For typical purchase loans, also known as FHA forward mortgages, HUD 4000.1 explains, “For purchase transactions, the Adjusted Value is the lesser of…purchase price less any inducements to purchase or the Property Value.”
For refinance loans, “For Properties acquired by the Borrower within 12 months of the case number assignment date, the Adjusted Value is the lesser of:
– the Borrowers purchase price, plus any documented improvements made subsequent to the purchase; or o the Property Value.
– Properties acquired by the Borrower within 12 months of case number assignment by inheritance or through a gift from a Family Member may utilize the calculation of Adjusted Value for properties purchased 12 months or greater.
-For properties acquired by the Borrower greater than or equal to 12 months prior to the case number assignment date, the Adjusted Value is the Property Value.”
And finally, this section of HUD 4000.1 also addresses how mortgage limits are calculated on a yearly basis. “Mortgage limits are calculated based on the median house prices in accordance with the statute. FHAs Single Family mortgage limits are set by Metropolitan Statistical Area and county and will be published periodically. FHAs Single Family mortgage limits are available by MSA and county, or by downloading a complete listing. FHA publishes updated limits effective for each calendar year. These limits will be set at or between the low cost area and high cost area limits based on the median house prices for the area.”
Talk to a loan officer for information about maximum loan amounts in your area.
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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