May 15, 2014
If you’ve never applied for an FHA mortgage loan before, chances are good that your questions about FHA loans include how much you can borrow. There’s a section of the FHA rulebook for mortgages, HUD 4155.1, that governs maximum mortgage amounts for FHA loans. Chapter Two of this guide addresses the issue, stating:
“The maximum insurable mortgage on a purchase is the lesser of the
- statutory loan limit for the area (typically a county, or metropolitan statistical area (MSA), or
- applicable loan-to-value (LTV) limit, applied to the lesser of the sales price, or appraised value.
The Department of Housing and Urban Development (HUD) issues a Mortgagee Letter (ML) announcing the new mortgage limits every year.” When discussing the maximum allowable mortgage, FHA loan rules do not include the amount of the Up Front Mortgage Insurance Payment or UFMIP in that amount.
The quote from Chapter Two above mentions an “applicable loan-to-value limit”. What are the LTV limits for FHA new purchase home loans? According to Chapter Two:
The determination of the maximum LTV percentage available to the borrower is influenced by
• the particular mortgage insurance program
• the property type (for example, new or existing construction), and
• various transactions that affect the maximum mortgage calculation, as described in HUD 4155.1 2.B.
Once determined, the LTV percentage is then applied to the lesser of the sales price or the appraised value, on a purchase, to determine the maximum insurable mortgage.”
There’s also a section that instructs lenders on how to calculate the maximum mortgage amount for a purchase loan:
“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.
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.”
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting 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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