How FHA Loan Limits Work
How are FHA mortgage loan limits calculated? HUD 4000.1 explains that the National Housing Act contains the loan limit requirements observed by the FHA. HUD 4000.1 says, “Mortgage limits are calculated based on the median house prices in accordance with the statute. FHA’s Single Family mortgage limits are set by Metropolitan Statistical Area and county and will be published periodically.”
In order to qualify as a typical FHA refinance or purchase loan, HUD 4000.1 says, “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.”
HUD 4000.1 adds that for “most” FHA loan programs, the maximum loan amount you can get (without applying for a “jumbo loan”) is either;
- The Nationwide Mortgage Limit for that area, or
- A percentage of the Adjusted Value of the property as determined by an appraisal.
When it comes to FHA refinance loan transactions, HUD 4000.1 says the adjusted value may be calculated in part based on when the home was purchased and in part on whether any improvements were made.
”For Properties acquired by the Borrower within 12 months of the case number assignment date, the Adjusted Value is the lesser of…the Borrower’s purchase price, plus any documented improvements made subsequent to the purchase…or the Property Value.”
Some homes aren’t purchased--they are inherited. What does the FHA Lender Handbook say about inherited homes? In many cases, the adjusted value is declared as being the same as the property value.
How does all this apply to the borrower in a practical sense? If you need to exceed the FHA loan limit for purchase or refinancing, you may need to consider an FHA Jumbo Loan. These types of mortgages may require a higher FICO score range depending on the lender and other variables.
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