April
5
,
2021
There are many myths people have about FHA home loans. One is the nature of the required FHA mortgage down payment or maximum financing available. Some assume there is a zero down payment option, but that is not true. The borrower is required to make a minimum down payment on all new purchase FHA mortgage loans (3.5%).
The maximum financing allowed is 96.5%. Some borrowers may have to make larger down payments depending on credit scores and credit history.
Loan-to-value percentages on FHA loans may vary depending on the type of transaction--for example, FHA refinancing. What is the maximum loan-to-value ratio for an FHA refinance loan?
FHA Refinance Loan Maximum LTVs
For no cash-out rate-and-term refinances, FHA loan rules say the maximum LTV is 97.5% for owner-occupied principal residences. That amount changes to 85 percent “for a Borrower who has occupied the subject Property as their Principal Residence for fewer than 12 months prior to the case number assignment date; or if owned less than 12 months, has not occupied the Property for that entire period of ownership”...
Cash-out refinance loans have an 85% loan-to-value ratio. Simple refinances have a maximum mortgage loan-to-value ratio of 97.75 percent for Principal Residences and 85 percent for HUD-approved Secondary Residences.
Streamline Refinances
For owner-occupied Principal Residences the “maximum Base Loan Amount” for Streamline Refinances is the lesser of the outstanding principal balance of the existing Mortgage as of the month prior to mortgage Disbursem*nt; or the original principal balance of the existing Mortgage.
Mortgage Insurance Issues
FHA mortgages will typically require payment of the Up Front Mortgage Insurance Premium. However, the UFMIP is not included when calculating the maximum financing amount. If you exceed the maximum mortgage amount when financing the premium, you are not penalized.
Your lender may need to make additional calculations, depending on the situation--one example: if the applicant’s original loan was less than a year before the loan application, and is not already FHA-insured, the original sales price of the property must be considered in determining the maximum mortgage.
In some cases, the costs of repairs and rehabilitation “incurred after the purchase of the property” may be allowed as part of the original sales price in calculating the mortgage amount.
The maximum mortgage amount will be based on the lesser of the total cost to acquire the property, which includes the original purchase price plus any documented costs incurred for rehabilitation, repairs, renovation, OR;
weatherization, closing costs, and reasonable discount points, OR current appraised value, OR “the total of all mortgage liens held against the subject property.”
Arriving at the maximum mortgage calculation on an FHA refinance loan can be a bit complex, but much depends on the circ*mstances of your loan application--that’s a good reason why all borrowers, whether making a new purchase or refinancing, should allow plenty of time in advance to prepare for the loan.
It never pays to be in a hurry when trying to purchase property--the more you know going into the process, the better prepared you will be.
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FAQs
2024 FHA Loan Limits
| Location | Limt Set @ | 1 Unit |
|---|
| Low Cost Area | 65% of conforming limit | $498,257 |
| High Cost Area | 150% of conforming limit | $1,149,825 |
| Alaska, Hawaii, Guam & Virgin Islands | 150% of high cost area limit | $1,724,725 |
The FHA allows a loan-to-value ratio of up to 80% when using the cash-out refinance program. That means your new loan can be up to 80% of the home's appraised value.
How to calculate max loan amount on FHA Streamline? ›
For owner-occupied Principal Residences the “maximum Base Loan Amount” for Streamline Refinances is the lesser of the outstanding principal balance of the existing Mortgage as of the month prior to mortgage Disbursem*nt; or the original principal balance of the existing Mortgage.
What if the loan amount exceeds the max FHA allowed? ›
The FHA has a maximum loan amount that it will insure, which is known as the FHA Lending Limit. If you are looking to buy a house that exceeds this limit, you are required to pay the difference as your down payment.
How do I calculate my maximum mortgage loan? ›
Maximum principal and interest (PI)
It is calculated by subtracting your monthly taxes and insurance from your monthly PITI payment. This calculator uses your maximum PI payment to determine the mortgage amount that you could qualify for.
What is the maximum claim amount for a FHA loan? ›
The HECM maximum claim amount will increase from $1,089,300 in calendar year 2023 to $1,149,825 effective for FHA case numbers assigned on or after January 1, 2024. This maximum claim amount is applicable to all areas, including the special exception areas of Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
What is the maximum mortgage refinance limit? ›
You want to estimate the maximum amount you can borrow when refinancing your loan. The maximum amount is 80% of the determined value of your home.
How to qualify for FHA refinance? ›
To qualify for an FHA Simple Refinance, you must:
- Already have an FHA insured loan.
- Be current on your payments and meet payment history requirements.
- Meet the loan requirements for credit score, income and other assets.
- Have an appraisal of the property.
Status of Mortgage: The mortgage being refinanced must be current for the month due. Cash Back: At closing, the borrower may not receive cash back in excess of $500.
How is the maximum loan amount determined? ›
A maximum loan amount describes the total sum that one is authorized to borrow on a line of credit, credit card, personal loan, or mortgage. In determining an applicant's maximum loan amount, lenders consider debt-to-income ratio, credit score, credit history, and financial profile.
How Is LTV Calculated? Loan-to-value (LTV) is calculated simply by taking the loan amount and dividing it by the value of the asset or collateral being borrowed against. In the case of a mortgage, this would be the mortgage amount divided by the property's value.
How do you calculate maximum borrowing capacity? ›
Generally speaking, your borrowing power is calculated as your net income minus your expenses. Your expenses can be impacted by things like the number of dependents in your family, any current home or personal loan repayments and other financial commitments such as private health insurance.
How is the FHA maximum loan amount calculated? ›
Loan Limits by State and County
That ceiling is set at 150% of the national conforming loan limit. On the low-end, the FHA's floor is set at 65% of the conforming loan limit.
What is the maximum LTV for an FHA streamline refinance without an appraisal? ›
Loan limits: Streamline refinances are not subject to the FHA mortgage limits but are subject to maximum mortgage amounts that are based upon the outstanding balance of the existing mortgage. Loan-to-value limits: Property appraisals are not required. There are no LTV or combined LTV limits.
What is the highest FHA loan limit? ›
The FHA loan limits for 2024 allow homebuyers to borrow up to $498,257 for a single-family home in most parts of the country.
What is the maximum you can finance with FHA? ›
FHA Loan Limits
According to HUD, the maximum FHA lending amount for high-cost areas (such as large metropolitan areas) is $1,149,825 for 2024. In lower-cost areas, the FHA limits are based on county, but generally, for one-unit properties the 2024 limit is $498,257. If you have multiple units, limits may be higher.
What is the maximum ratio for a FHA loan? ›
Understanding Compensating Factors
According to official FHA guidelines, borrowers are generally limited to having debt ratios of 31% on the front end, and 43% on the back end. But the back-end DTI could be as high as 50% for certain borrowers, particularly those with good credit and/or other "compensating factors."
How do you calculate maximum loan to value? ›
How Is LTV Calculated? Loan-to-value (LTV) is calculated simply by taking the loan amount and dividing it by the value of the asset or collateral being borrowed against. In the case of a mortgage, this would be the mortgage amount divided by the property's value.
