December 2, 2015
Ever since the FHA and HUD updated FHA single-family home loan rules previously found in HUD 4155.1 and HUD 4155.2, we’ve been examining critical areas of the new FHA loan rulebook. One such area involves calculating the maximum FHA loan guarantee limit.
FHA issues new guidelines for FHA mortgage loan limits each year, but what does HUD 4000.1 say about this process?
“The National Housing Act establishes the maximum Mortgage limits and the mortgage amounts for all FHA mortgage insurance programs…Mortgage limits are calculated based on the median house prices in accordance with the statute. FHAs Single Family mortgage limits are set by Metropolitan Statistical Area and county and will be published periodically.”
Furthermore, “A Mortgage that is to be insured by FHA cannot exceed the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio. The maximum LTV ratios vary depending upon the type of Borrower, type of transaction (purchase or refinance), program type, and stage of construction.”
As you can see, there are specific parts to this equation including the amount of the borrower’s required minimum down payment. The maximum guarantee may also vary depending on the nature of the loan transaction–purchase or refinance.
According to HUD 4000.1:
“Under most programs, the maximum Mortgage is the lesser of the Nationwide Mortgage Limit for the area, or a percentage of the Adjusted Value.
For purchase transactions, the Adjusted Value is the lesser of:
–purchase price less any inducements to purchase; or
–the Property Value.
For refinance transactions:
For Properties acquired by the Borrower within 12 months of the case number assignment date, the Adjusted Value is the lesser of:
–the Borrowers purchase price, plus any documented improvements made subsequent to the purchase; or
–the Property Value.
Properties acquired by the Borrower within 12 months of case number assignment by inheritance or through a gift from a Family Member may utilize the calculation of Adjusted Value for properties purchased 12 months or greater. For properties acquired by the Borrower greater than or equal to 12 months prior to the case number assignment date, the Adjusted Value is the Property Value.”
At the time of this writing, the FHA loan limits for 2016 have not been issued yet but we will publish an update once that information becomes available.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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