March 27, 2015
A reader asks, “Is the LTV calculated on the total loan amount (base loan+MIP), or the base loan amount only?”
FHA loan rules covering the subject of loan-to-value calculations are found in HUD 4155.1 Chapter Two Section A, which states:
“The maximum mortgage amount that FHA will insure on a purchase is calculated by multiplying the appropriate loan-to-value (LTV) factor by the lesser of the property’s
–sales price, subject to certain required adjustments, or
–appraised value.
In order for FHA to insure this maximum loan amount, the borrower must make a required investment of at least 3.5% of the lesser of the appraised value or the sales price of the property.”
The 3.5% investment, better known as the borrower’s down payment, is also covered in Chapter Two Section A with some important caveats all FHA loan applicants should know:
“Closing costs (non-recurring closing costs, pre-paid expenses, and discount points) may not be used to help meet the borrower’s minimum required investment.”
The FHA loan rulebook also addresses the issue of Up Front Mortgage Insurance Premiums in relation to the LTV calculation issue:
“Most FHA mortgages require the payment of an upfront mortgage insurance premium (UFMIP). The statutory loan amounts and LTV limits discussed in this handbook do not include the UFMIP.”
For more information on calculating the LTV on your FHA home loan, discuss your concerns with your loan officer, especially if you aren’t sure how much down payment you might be required to make or how much you wish to make above and beyond the minimum requirement.
Do you have questions about FHA home loans? Ask us in the comments section. All questions and comments are held for review prior to appearing on the site.
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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