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You and your lender need the amount of the sale price of a home before a loan amount can be properly calculated. Other factors that affect the loan include the amount of your down payment, and the county loan limits where you are buying the home.

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FHA Loan Articles

News and Updates for Homeowners

Learning the Basics About FHA Loan Limits

November 7, 2014 - FHA loan applicants often want to know the answer to a simple, basic question: How much can I borrow when I apply for an FHA guaranteed mortgage.

Since the FHA loan amount depends on the appraised value of the home and additional factors, there's no place in the FHA loan rulebook that says "$XYZ is the limit for all FHA loans." You and your lender need the amount of the sale price of a home before a loan amount can be properly calculated. Other factors that affect the loan include the amount of your down payment, and the county loan limits where you are buying the home.

For some borrowers, the "how much can I borrow?" question comes because they want to know about applying for an amount higher than the actual sale price or appraised value of the property (and any approved add-ons to the loan amount) for the purposes of getting cash back at closing time. This is not permitted for FHA home loans, so borrower who ask "how much can I borrow?" with that idea in mind should know it's not a possibility.

FHA loan basics for maximum loan amounts are described in the FHA loan rulebook, HUD 4155.1, Chapter One, Section A.

Chapter One explains the basics as follows:

FHA's single family mortgage limits are set by county and are tied to increases in the loan limits established by the Federal Home Loan Mortgage Corporation (Freddie Mac) in accordance with Section 203(b)(2)(A) of the National Housing Act, as amended by 12 U.S.C.17091.

Under Section 203(b), the nationwide basic mortgage limits (the floor) may not

exceed 150 percent of the Freddie Mac national loan limit, or

be less than 65 percent of the dollar amount limitation of Freddie Mac.

As previously mentioned, FHA mortgage limits aren't the same in every housing market. Some markets are far more expensive than others, and FHA loan limits are adjusted accordingly. In fact, there are some additional instructions for participating FHA lenders for high-cost housing markets:

Section 203(b)(2)(A) of the National Housing Act states that mortgage limits in high cost areas (the ceiling) may increase to 150 percent of the dollar amount limitation as described under Section 305(a)(2) of Freddie Mac for a residence of applicable size. In these high cost areas, the loan limit is equal to the lesser of

115 percent of the area median house price, or

the statutory ceiling for the high cost areas.

Section 214 of the NHA provides that mortgage limits for Alaska, Hawaii, Guam, and the Virgin Islands may be adjusted up to 150 percent of the new FHA ceilings.

Consider getting pre-qualified for a loan to determine what FHA loan limit may be available in a given housing market. FHA loans are limited to the amount remaining--plus any allowable add-ons to the loan amount such as discount points or other costs--after the borrower has made the FHA-required 3.5% down payment. Remember, there's no such thing as a zero-downpayment new purchase FHA home loan.