August 9, 2017
What can I add to my FHA mortgage loan? There’s a list of items that may be allowed to be added to your mortgage loan above and beyond the adjusted value of your property. Let’s examine what the FHA loan handbook, HUD 4000.1, has to say about adding certain costs to your home loan amount.
Calculating The Maximum Mortgage Amount On Your FHA Loan
To start, let’s see what HUD 4000.1 says about how the lender is expected to calculate the maximum mortgage amount. “The maximum mortgage amount that FHA will insure on a specific purchase is calculated by multiplying the appropriate LTV percentage by the Adjusted Value. In order for FHA to insure this maximum mortgage amount, the Borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.”
Up Front Mortgage Insurance Premiums
FHA loan rules state that in general, “…restrictions to mortgage amounts and LTVs are based upon the amount prior to the financing of the Upfront Mortgage Insurance Premium (UFMIP) (Base Loan Amount). The total mortgage amount may be increased by the financed UFMIP amount.” That is good news for borrowers who need to include that expense into the loan amount.
It should be pointed out that UFMIP must be paid entirely up front in cash or entirely rolled into the loan. You can’t pay half up front and include half into the loan, or other variations of that notion.
Energy-Related Improvements
FHA loan rules state that energy-related upgrades such as weatherization may be included in the loan amount as long as those improvements are acceptable under FHA weatherization policies. Additionally, to cost of upgrading to solar energy systems may also be considered for inclusion in the loan amount. “A Mortgagee may add the cost of a solar energy system (including active and passive solar- and wind-driven systems) to the Mortgage in accordance with Solar and Wind Technologies policies.
When adding the cost of a solar energy system to the mortgage amount, the maximum insurable mortgage limit may be exceeded by up to 20 percent.”
Repairs Or Corrections Required By The FHA Appraisal
HUD 4000.1 says your lender is allowed to add repair costs to the sales price before calculating the mortgage amount in situations where the following applies:
-the repairs are required by the Appraiser to meet HUD’s MPR;
-the repairs are paid for by the Borrower
-the sales contract or addendum identifies the Borrower as the party responsible for payment and completion of the repairs.
How much can the lender add for such repair costs? According to HUD 4000.1, the maximum amount would be the lesser of:
-the amount by which the value of the Property exceeds the sales price;
-the Appraiser’s estimate of repairs; or
-the amount of the contractor’s bid.
Lender standards and state law may apply above and beyond these guidelines. Talk to a loan officer to see how these rules may affect your transaction.
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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