February 14, 2014
When you’re applying for an FHA home loan, one of the first questions you likely have to ask is how much you can borrow. The answer to that question depends on a variety of factors, including how much down payment you are putting down or may be required to put down.
The FHA has minimum requirements for down payments (3.5%) and some guidelines on how much the borrower can get with an FHA insured mortgage loan. The rules for maximum FHA loan amounts are found in HUD 4155.1 Chapter One Section A. It says in part:
“The statutory provisions of the National Housing Act establish the maximum loan limits and mortgage amounts for all FHA mortgage insurance programs. Maximum loan limits vary depending upon the
• specific program under which a loan is insured
• number of dwelling units in the property (one to four units), and • geographic location of the property.
Under most programs, the maximum insurable mortgage is the lesser of
- the statutory loan limit for the area, or
- a percentage of the lesser of the appraised value, or sales price.”
The phrase “a percentage of the lesser of the appraised value or sales price” means that an FHA loan definitely requires a down payment. The percentage would depend on whether the borrower is only making the minimum 3.5% down payment, putting more down voluntarily, or must make a larger down payment as a compensating factor.
Since there is no fixed dollar amount maximum for FHA loans, the borrower and lender need to review the following from Chapter One and reference it with the appropriate limits for the area where the house to be purchased is located. Chapter One says:
“FHA’s single family mortgage limits are set by county and are tied to increases in the loan limits established by the Federal Home Loan Mortgage Corporation (Freddie Mac) in accordance with Section 203(b)(2)(A) of the National Housing Act, as amended by 12 U.S.C.17091. Under Section 203(b), the nationwide basic mortgage limits (the floor) may not
• exceed 150 percent of the Freddie Mac national loan limit, or
• be less than 65 percent of the dollar amount limitation of Freddie Mac.”
Borrowers can reference FHA loan limits by county at the FHA official site.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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