February 22, 2013
Many borrowers want to know why FHA home loans are available for the same size and type of properties, but in larger or smaller amounts depending on the market. Why aren’t FHA loan amounts standardized?
The basic answer to this is that all housing markets are different, and the costs in one market are not necessarily the same for another. A two-bedroom home with a garage in Bangor, Maine might not cost the same to build or finance as a similar home in Cleveland, Ohio. The same goes for properties located on either coast—how much would that two-bedroom home build and sell for in Los Angeles or New York?
To address these issues, the FHA has created a table that lists the FHA loan limits for counties where the costs of buying a home are higher than normal. This is discussed in the FHA loan rulebook, HUD 4155.1 Chapter One under the section titled Maximum Loan Limits, Mortgage Amounts and Mortgage Terms. It says in part:
“Section 203(b)(2)(A) of the National Housing Act states that mortgage limits in high cost areas (the ceiling) may increase to 150 percent of the dollar amount limitation as described under Section 305(a)(2) of Freddie Mac for a residence of applicable size.
In these high cost areas, the loan limit is equal to the lesser of
• 115 percent of the area median house price, or
• the statutory ceiling for the high cost areas.
Section 214 of the NHA provides that mortgage limits for Alaska, Hawaii, Guam, and the Virgin Islands may be adjusted up to 150 percent of the new FHA ceilings.”
In addition to these higher loan amounts, the FHA also has rules in place that govern how much money can be approved for an FHA mortgage loan in general. “A mortgage that is to be insured by FHA cannot exceed a certain percentage of property value. The maximum LTV ratios vary depending upon the
• type of borrower
• type of transaction (purchase or refinance), and
• stage of construction.”
For more information on these limits, speak to a loan officer or contact the FHA directly at 1-800 CALL FHA.
Do you have questions about FHA 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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