October 31, 2014
One of the first questions on the minds of many borrowers is a logical one: “How much can I borrow?”
There’s no single answer for this as county loan guaranty limits apply, and in general the amount of the FHA home loan is based on the sale price of the home or the appraised value, whichever is lower. When it comes to home loan refinancing, the appraised value of the property is very important.
There are factors that can affect the amount of the FHA home loan for new purchases or refinance loans beyond those factors. For example, if you choose to finance allowable fees and expenses (including some discount points depending on the transaction and lender policies) your loan amount will increase.
If you make a larger down payment, naturally that brings down the total amount of the loan. And there are some factors that can lower the loan amount overall, but not in a good way.
Consider what FHA loan rules found in HUD 4155.1 say about certain things paid for by the seller that can result in a dollar-for-dollar reduction in the loan amount. This information is found in Chapter Two, Section A in a portion of the loan rules discussing something known as an “inducement to purchase”.
From Chapter Two:
“Certain expenses paid by the seller and/or another interested third party on behalf of the borrower are considered ‘inducements to purchase’ and result in a dollar-for-dollar reduction to the lesser of the sales price or appraised value of the property before applying the appropriate loan-to-value (LTV) factor.
These expenses include
• contributions exceeding 6% of the sales price
• contributions exceeding the actual cost of prepaid expenses, discount points, and other financing concessions
• decorating allowances
• repair allowances
• moving costs, and
• other costs as determined by the appropriate Homeownership Center (HOC).”
Chapter Two also notes that a dollar-for-dollar sales price reduction is also required in cases where there has been one of the following paid:
• excess rent credit
• gift funds not meeting the requirements described in HUD 4155.1 5.B.5.
Borrowers who aren’t sure if their agreement between buyer and seller cross the line into inducement to purchase should discuss the agreement with the participating FHA lender to see what may apply and what steps can be taken to avoid getting into inducements to purchase.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.
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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