“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.”
Borrowers sometimes wonder if they can apply for a home loan for more than the purchase price of the home. The answer to such questions depends greatly on what the extra money is to be used for. For forward mortgages and refinance loans alike, FHA loan rules permit additional funds to be added to the loan for approved energy efficient upgrades to the home.
A borrower can also apply for a fixer-upper loan (an FHA 203 rehab loan) that adds funds for purchase and repairs. A 203 rehab loan can be applied for as either a forward mortgage or a refinance loan.
But extra funds intended to go to the borrower in cash are not permitted-borrowers cannot get cash back on an FHA forward mortgage or a refinance loan unless the refinance loan is specifically an FHA cash-out refinance loan.
How does the FHA loan rule book instruct the lender to determine the basic maximum loan amount (less any energy efficient add-ons, approved costs that are financed into the loan, etc.)?
According to HUD 4000.1:
“Under most programs, the maximum Mortgage is the lesser of the Nationwide Mortgage Limit for the area, or a percentage of the Adjusted Value.”
HUD 4000.1 states that forward mortgages, also known as purchase transactions, “the Adjusted Value is the lesser of:
– purchase price less any inducements to purchase; or
– the Property Value.”
And what about FHA 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 the Property Value.”
There are some additional considerations, depending on circumstances. HUD 4000.1 states that for homes purchased “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.”
Talk to your lender about FHA loan maximum amounts, and how add-ons and permitted closing costs could be added to the loan amount where needed.