February 1, 2013
A reader asks, “My son and I have a combined income of $68,000 yearly. His credit score is 643 and mine is 639. I also have a IRA worth $190,000 what do we qualify for from a FHA Loan?”
This is a type of question that comes in frequently and unfortunately the answer isn’t as simple as doing the math and returning a loan amount. There are many variables that go into calculating an FHA home loan amount including the borrower’s financial qualifications, the lender’s requirements, the cost of the home and other factors.
A house for sale in one part of the country for $150,000 might be worth much or (or less) in another part of the country. Since FHA loans for new purchases are calculated on the fair market value of the property and the FHA loan limits for that market, the home’s location would play a part in determining how much could be borrowed.
The actual loan amount isn’t the only factor to consider. A borrower is required to make a minimum down payment of 3.5% on an FHA home loan; the borrower’s down payment is not reduced by the amount of fees, closing costs or other expenses paid up front.
The actual amount of the loan is not the “full sale price” of the property, but a percentage of that price depending on how much the borrower puts down. If the minimum down payment of 3.5% is rendered, the loan amount would be 96.5% of the sale price plus any allowable extras included in the loan amount where applicable. Reader questions like these here might assume that a set income amount and set credit score amount are the factors that play the biggest part in determining the FHA loan amount–but other variables also factor in.
The best thing a borrower can do is to speak to a loan officer or pre-qualify for an FHA home loan online (you can pre-qualify via www.FHALoan.com which is a private company, not a government agency) and review your options from there. The loan amount you get pre-qualified for would be determined on location, the transaction and the estimated sale price of the home.
Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.
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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