July 14, 2021
How much will my FHA home loan be? That is a question many borrowers want to know, and the answer can be more complicated than just taking the sale price of the home and doing the math.
FHA home loan maximum amounts are determined by factors including the maximum FHA loan guaranty for the housing market you are buying the home in, your credit history, the amount of your down payment, and more.
The final amount of your FHA mortgage loan is affected by your down payment, the FHA loan limit in your area, and other factors.
FHA Home Loan Limits
FHA home loan limits are not the same in all housing markets. Some parts of the country are considered low-cost areas and have a lower FHA loan guaranty limit than “typical” housing markets, and high-cost areas such as Hawaii, Guam, and elsewhere have higher limits.
You can start by looking up the FHA loan limits in your area to determine what’s possible, but know that the FHA loan limits are not calculated with things such as the amount of FHA up-front mortgage insurance premiums (UFMIP) added. Expenses associated with your mortgage loan that wind up being financed are added to the loan after the calculation of the maximum mortgage amount.
In other words, the FHA’s maximum mortgage guaranty limits won’t affect your ability to finance UFMIP. But the FHA loan guaranty limit is one factor that will definitely guide how much home loan you can apply for.
FHA Mortgage Loan Rules For Down Payments
Your maximum loan amount is affected by the amount of down payment you make. If you pay a higher amount than the minimum 3.5%, the overall amount of your loan will go down, saving you money over the lifetime of the mortgage due to the decreased principal and the interest rate calculation on the mortgage over the term of the loan.
Some borrowers have the option to pay more down, while others may actually be required to make a higher down payment because of credit issues. A higher down payment can affect the overall amount of your maximum mortgage, but it also affects the amount of your monthly mortgage payments.
Some FHA mortgages require more down regardless of credit issues or other factors-a new purchase home loan with an “identity of interest” where a party to the transaction is a relative or someone with a business relationship with the borrower. Identity of interest situations, the maximum loan is limited to 85% of the adjusted value of the home.
That means a 15% minimum down payment would be required. In such cases the maximum FHA loan amount would be 85% of the adjusted value of the property with the borrower paying the remaining 15%.
FHA Loans For New Purchases Don’t Allow Cash Back
Some borrowers want to know if they can apply for more FHA home loan than is required to purchase the home and pay for any allowed expenses or costs that are financed. FHA loan rules do not allow cash back to the borrower for new purchase home loan or no-cash out refinancing except in the form of legitimate refunds for money paid up front for things later financed into the loan amount.
Your FHA home loan cannot be used as a personal loan in any way-all loan proceeds are required to be used in a lender-approved and FHA-approved way. The borrower is not allowed to receive cash back on a new purchase FHA home loan the way those who apply for FHA Cash-Out Refinancing are allowed cash back.
There are many factors that combine to help the lender arrive at the maximum loan amount for your FHA mortgage. Talk to a loan officer today to learn how that amount might be calculated for your specific home loan needs.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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