February 10, 2014
One of the most common questions about new purchase FHA loans–where the borrower wants to buy a home (as opposed to refinancing one) involves the maximum loan amount. What do FHA loan rules say about how much you can borrow? Is there a maximum dollar amount for the FHA loan? The answer isn’t as simple as quoting a dollar figure. The FHA loan rulebook doesn’t contain a single number that effectively limits the dollar amount.
Instead, there are a variety of factors that may vary depending on where the home is located and other variables. The rules for FHA loan maximums are found in HUD 4155.1, Chapter Two Section A. Under the heading titled, “Maximum Mortgage Amounts For A Purchase” we find the following:
“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.”
As you can see, this doesn’t allow a simple answer to the question, “What’s the most I can borrow with an FHA loan?” The sales price and/or appraised value, as mentioned above, play an important part in that maximum, as does the FHA loan guaranty limit for the county the property is in. The FHA loan guaranty limit doesn’t place a dollar amount limit on the loan, either, but rather limits the amount the FHA will guaranty for that loan.
For some lenders, the county loan limit may affect how much the bank is willing to lend (depending on lender policy) but these things will vary from one financial institution to another.
For some borrowers, a better question to ask might be, “How much FHA loan can I afford?” and go from there. A borrower who knows what he or she can afford a certain amount based on what they learn using a mortgage calculator goes into the house hunting process much better prepared for the entire process.
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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