FHA Loan Limits: The Basics
FHA mortgage loan limits are part of figuring that out--let’s examine how they work.
The FHA Lenders Handbook, HUD 4000.1, explains how FHA loan limits work. “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.”
Nationwide limits are established “based on the median house prices in accordance with the statute” and are influenced by the home loan limits established by Freddie Mac and Fannie Mae.
There is no one-size-fits-all loan limit for all houses; the amount of the FHA loan limit is affected by the number of units;FHA home loans can be used to purchase residences with as many as four living units. But this is where things get a bit confusing for some first-time home buyers.
What Is the Maximum Loan Amount?
The maximum loan amount you qualify for depends on several factors--the cost of the home itself is not the only consideration. Your FHA loan may include certain financed closing costs (added to your loan amount) and may also (depending on the loan and the lender) include financed discount points.
It also depends on how much you decide to pay up front in the form of a down payment. All FHA forward mortgages require a down payment (a minimum of 3.5%) but those who choose to make a larger down payment are borrowing less (assuming financed costs are kept to a minimum) and saving more over the lifetime of the mortgage.
These borrowers may or may not reach the FHA loan limit for their county by the time the transaction is over, but a bigger down payment could be a way to get more home loan for those who can afford it.
FHA Loan Limits Vary
In short, the maximum FHA loan amount possible will vary. “depending upon the type of Borrower, type of transaction (purchase or refinance), program type, and stage of construction” and in most cases, your maximum loan amount will be either a percentage of the adjusted value of the home or the mortgage loan limit for the area (whichever is less).
There is a “floor” for FHA mortgages--a minimum loan amount. There is also a ceiling, which applies in high-cost areas (set at 150% of the FHA conforming loan limit). These limits are set each year and are given annual cost-of-living type adjustments (based on housing market factors).
In many areas, you can expect the FHA loan limit to be “65% of the value of conventional loan limits.”
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