January 26, 2011
If you’re a first-time home buyer looking to buy a home with an FHA loan, there are quite a few new terms and phrases to get familiar with. Anyone who has priced a home probably knows a lot more about the ups and downs of the housing market when it comes to the value of a particular home in a specific neighborhood…but newcomers to the FHA loan process may wonder if the homes they are viewing are worth the asking price and whether or not they can qualify for an FHA guaranteed loan to meet that asking price.
There are several factors that go into the final amount of an FHA home loan. One of those factors is the appraised value of the property–how much the FHA deems the property is actually worth on the market as opposed to how much the seller wants the home for. That information is determined once a buyer is serious enough about the property to pay for an FHA appraisal. But an equally important factor in this equation is how much the FHA will guaranty the loan for at a maximum for that property.
The maximum FHA loan amount has nothing to do with the actual price of the home. Instead, maximum FHA loan amounts–the FHA loan limit–is determined by market factors in that part of the country, usually broken down by state and county. Many parts of the country have the same FHA loan limit, but there are high-cost areas that feature different loan limits. FHA mortgage loan limits are searchable by state and county at the FHA official site https://entp.hud.gov/idapp/html/hicostlook.cfm.
The maximum loan amount often doesn’t correspond with the asking price of the home. In cases where the asking price is too high, the borrower should either negotiate or prepare to pay the difference out of pocket as an up-front expense. The same goes for situations where the FHA determines the fair market value of the home to be lower than the asking price. The FHA won’t guaranty a loan for more than the fair market value plus allowable add-ons to the loan like energy-efficient improvements and other extras, regardless of what the asking price may be.
In cases where the maximum loan limit is higher than the asking price of the home, the FHA will guaranty a loan for the lower amount. The buyer isn’t allowed to profit on an FHA mortgage by getting more loan than is required to buy the home. The asking price and the fair market value of the property may be the same, or the asking price may actually be lower than the value of the property, but in any case the FHA loan amount will be for the lowest applicable amount.
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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