FHA Loan Limits

FHA
Loan
Limits
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FHA loans are government sponsored loans that are not funded by the
government, but guaranteed by them. This means that the
bank/lender provides the funds for your loan as well as services it; the
FHA simply backs them in the case of default. They are providing
insurance for the lender which allows the lender to take on loans that
may be a bit riskier than the conforming lenders would be able to
provide. Should you default on your loan, the lender receives the
amount that was defaulted on from the government, which is funded
through the insurance premiums you pay upfront and annually for an
FHA mortgage.
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FHA loan limits vary by state, county, and individual. There are
maximums set for each area, but your individual criteria will
determine how much you are eligible to receive. FHA loans do
possess lighter restrictions, which means many more people are able
to obtain them, but every lender can add their own lender overlay,
which are additional restrictions in order to protect their own interest
in the loan.
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FHA Loan Limits by Area
The FHA has standard loan size limits for every area of the country.
The areas are broken down by county and even city level depending
on the median home price in any given area. The home prices are
gauged against the national conforming loan limit by totaling the cost
of the homes in the area. If the home price is significantly above or
below the national conforming loan limit of $417,000, then the loan
limit is changed for that area. As of right now, the lowest loan limit is
$271,050 and the highest is $625,500. These differences represent
homes that are less than 65% of the standard $417,000 and those
that are 150% more than the standard loan amount.
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As an example, every county in Alabama has a maximum loan size of
$271,050 no matter the county, for a single family home. For a
duplex, the maximum is $347,000; tri-plex is $419,425, and four-plex
is $521,250. In Arizona the same is true, with the exception of
Coconino County, which has a loan maximum of $362,250 for a
single family home. In areas of California, the FHA loan limits differ
drastically from county to county. For example, Alameda County has
a loan maximum of $625,500 while Butte County has a loan
maximum of $293,250. Every area of the world differs in order to
ensure that the appropriate amount of financing is available to
stimulate the economy and provide funding for those that would
otherwise be unable to get conforming financing.
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Loan Sizes Depend on Credit,
Income, and Debt
In addition to the limits for your area, there is the requirement you
must meet in order to qualify for a loan. The loan maximum that you
qualify for is dependent upon your credit history, credit score, income,
employment history, current debts, and the price of the home you are
purchasing. The FHA loan limits by area are strictly to let you know
the MAXIMUM loan you could apply for if you wished to obtain FHA
financing; it is not a guarantee for a loan of that size. The lender will
look over your entire loan profile to determine what you qualify for
and can afford comfortably without having serious financial issues as
a result. Every lender has their own requirements that you must abide
by in addition to those set forth by the FHA.
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Credit Reporting
Your credit score along with your credit history plays an important
role in the FHA loan limits that apply to you. Even if the maximum
loan amount in your area is $625,500 as it is in many high cost areas,
you may not be eligible for that high of a loan – it depends on what
your credit history looks like. In general, the FHA requires credit
scores to be over 580 in order to be considered for an FHA loan. This
does not mean that every lender will accept that credit score,
however. Some lenders prefer the score to be a little higher; typically
around 640 or so. According to the FHA, if your credit score is below
580, you may still be eligible, if the bank is willing to fund the loan;
however, you will be required to put down 10% rather than just 3.5%
as is the case for those with a higher credit score.
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There are many factors that play a role in your credit score, history, and
how a lender qualifies you for a loan amount. What the lender is looking
for is adequate credit lines with timely payments and responsible use of
the available credit, meaning that you did not overextend yourself and
have maxed out any credit lines that you have. If you do not have the
picture perfect credit that lenders are looking for, they may still work
with you. Even if you have no credit, they can use alternate forms of
credit to verify your credit worthiness. In addition, if you have any
negative aspects on your credit report, such as late payments,
bankruptcies, foreclosures, or collections, an FHA lender can look at
your case individually to see how to proceed. The one aspect on a credit
report that cannot be worked around, however, is a federal collection. If
you have any outstanding federal debts that are not taken care of before
you apply for the loan, an FHA loan will not be an option for you.
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Income
When a lender figures out the FHA loan limits that apply to you, they
are considering your income over the last two years. If you have had
fluctuating income due to commissions, bonuses, or a change in
employment, an average over the last 2 years will typically be taken.
In these cases, the lender will typically need to see your full tax return
in addition to your pay stubs, which is the usual documentation
required for an FHA loan. If you were self-employed or had
commission based income, your expenses will also be figured into
your income, which could lower the amount of the loan you will be
eligible to receive.
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If you have special circumstances regarding your income, such
as seasonal employment or other fluctuations, they will have to
be brought to the attention of the underwriter. In general, FHA
loans require straightforward income that can be verified and is
regularly received in order to avoid providing a borrower with a
risky loan. If you have compensating factors that make up for
your odd income, such as high credit scores or a low debt ratio,
the varying income can be overlooked. Generally, the lender
looks at the overall picture to determine what risks they are
willing to take in order to provide potential buyers with FHA
financing.
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The Role of the Debt Ratio
Your debt-to-income ratio plays an important role in how much money you
get approved for on an FHA loan. Aside from your credit score/history, your
debt ratio is the next most important factor. Generally, FHA lenders try to
keep borrowers’ debt ratios at 31% on the front end and 43% on the back
end. This is generally how the loan amount you are eligible to receive is
figured. This means that even if you live in an area where the maximum
loan amount is $300,000, but that mortgage payment combined with the
taxes and insurance for the home would make your front end debt ratio
higher than 31%, that you would not be eligible for a loan that size. The
lender will figure out what mortgage payment will keep your front end debt
ratio at 31% and the back end ratio, which is the mortgage payment plus
any other monthly obligations, under 43%. This amount will differ for
everyone as it depends on the interest rate being charged, the amount of
taxes for the home you are purchasing, as well as the cost of the
homeowner’s insurance. BLOWNMORTGAGE.COM

The Type of Property
Another factor in the FHA loan limits is the type of property you are
purchasing. FHA loans are available on single family homes,
townhomes, PUDs, condos, and multi-unit properties. The type of home
you are purchasing will determine the limits imposed upon it. The types
of property as classified by the FHA include:
Single family housing (including condos, townhomes, and PUDs)
Duplex
Tri-plex
Four-plex
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Each category has its own limits. For example, in Baker County,
Georgia, the FHA loan limits are as follows:
Single family home: $271,050
Duplex: $347,000
Tri-plex: $419,425
Four-plex: $521,550
Generally, the more units in the property, the higher the loan
limit for the property itself. If you are purchasing a multi-unit
property, you have to be living in at least one of the units in
order to be eligible for FHA financing.
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T O L E A R N M O R E
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C L IC K HE R E
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Justin McHood is Americas Mortgage
Commentator and has been providing
Mortgage commentary for over 10 years.
INFORMATION PROVIDED BY:
JUSTIN MCHOOD
MORTGAGE COMMENTATOR
Information Originally Published: December 18, 2015 BLOWNMORTGAGE.COM

LEARN MORE ABOUT MORTGAGE COMMENTATOR:
MORTGAGECOMMENTATOR.COM
FACEBOOK.COM/MORTGAGECOMMENTATOR
@MORTGAGECOM_
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FHA Loan Limits

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FHA Loan Limits