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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.  The borrower is required to make a minimum down payment on all new purchase FHA mortgage loans (3.5%).

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FHA Loan Articles

News and Updates for Homeowners

The FHA Refinance Loan Maximum Mortgage Calculation

September 14, 2015 - 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 downpayment 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 would be 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 for an FHA refinance loan?

For non-streamline, appraisal-required FHA refinance loans that feature no cash back to the borrower, FHA loans rules state that the maximum mortgage for a no cash out refinance with an appraisal (credit qualifying) “is the lesser of the 97.75% Loan-To-Value (LTV) factor applied to the appraised value of the property or existing debt.”

At the time of this writing you can find the above rule in HUD 4155.1, Chapter Three, Section B, which adds some further clarification:

“The total FHA first mortgage is limited to 100% of the appraised value, including any financed upfront mortgage insurance premium (UFMIP).”

FHA mortgages will typically require payment of the Up Front Mortgage Insurance Premium.

“The statutory loan amounts and LTV limits described in this handbook do not include the UFMIP. Generally, the maximum mortgage may never exceed the statutory limit, except by the amount of any new UFMIP. However, the maximum mortgage may exceed the statutory limit on certain specialty products.”

Your lender may need to make additional calculations, depending on the situation--one example: if the applicant’s original loan was “less than one 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 addition to the calculations described previously in this topic.”

“Using conclusive documentation, expenditures for repairs and rehabilitation incurred after the purchase of the property may be added to 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

–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 circumstances 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.