FHA Loan Amount
Typically, FHA will not insure more than one mortgage to any Borrower.
An individual or couple owning a home that is already covered by an FHA mortgage
cannot purchase another property that will be financed through FHA except under the following conditions:
Increase in family
size: If the number of dependents has increased to the point where the present home no longer meets the family’s needs, the
Borrower may be able to finance another home through FHA. Borrower must provide satisfactory evidence of the increase in family size and show
how the home no longer is large enough for the family. The Borrower must
also pay down the 1st FHA mortgage so that the LTV on that loan does not
exceed 75% of the current appraised value of the property. (NOTE: A full appraisal will be required to
establish the value of the home).
Relocation: For Borrowers who are relocating to a new area that is
not within a “reasonable commute” from their FHA-insured primary residence,
the Borrower may keep the FHA-insured property as a rental property. The mortgage payment on the home must be documented and a lease of a
1-year duration (or longer) is required to show the rental income supports
the payment for the mortgage.
Vacating a Jointly owned property: If the Borrower is vacating a
residence that will remain occupied by a Co-Mortgagor, the individual vacating the property is permitted to obtain another FHA-insured loan.
Acceptable situations would include those following a divorce or where one
of the Co-Mortgagors will vacate the existing property to marry another.
For divorce situations, a copy of the divorce decree and the quitclaim
deed would be required to show that the Borrower has relinquished the first FHA-insured property as part of the property settlement. It is also
necessary to provide copies of canceled mortgage payment checks to show the ex-spouse has been paying the mortgage payment (with no
lates) for at least the past 12 months.
A Non-Occupant Co-Borrower: A Borrower may be a Non-Occupying Borrower on the purchase of a 1-unit home for a family member to assist
that person in qualifying the mortgage. The Borrower may still obtain
maximum FHA financing on his own personal mortgage for his personal
Unless one of the 4 scenarios (above) is met, the Borrower may NOT obtain
maximum FHA (over 75% LTV) financing.
Some types of loan transactions affect the maximum loan amount
that can be approved to the borrower:
Identity of Interest (Personal Relationship)
between Buyer and Seller of property.
- Maximum LTV is 85% unless: The Borrower is purchasing the Seller’s
primary residence, the Borrower is purchasing the Seller’s Investment Property,
but the Borrower has already lived in subject property 6 months or
more, or the borrower is an employee of the builder who is selling a model or spec home to the Borrower as his new Primary
Residence, or an Acceptable employer relocation packages.
A Co-Borrower is on the loan transaction who will not occupy the
property. Allowed for purchase of 1 unit property only. (NOTE: Non- Occupant Co-Borrowers are
not allowed on 2-4 family home purchases.)
Additional Note: Please check with your specific lender if this is
an issue on your loan. I know of two major lenders that have
accepted N/O/O Co-borrowers. (?)
3 and 4 Unit properties: Maximum financing for multi family homes with
either 3 or 4 units cannot be allowed unless the rental income on the
property supports the mortgage payment.
- 3 months PITI Reserves are required (from Borrowers own funds. No
gifts are allowed to meet reserve requirement).
- b) The maximum loan amount is limited to the amount equal to 85% of the gross rent for
all living units of the subject property (including the Unit(s) which will be owner-occupied).
- c) Rental income (if used to qualify) may be added to the Borrower’s
wage income. The rental income figure to be used will be 85% of the gross rent for the rental units (not including units that are owner
occupied). For purchases, the appraiser is responsible for documenting the
“market rent” for the property. Leases will not be accepted to show a higher rent over what the appraiser is using.
For refinances, the Borrower must provide Schedule E from most recent 1040 form to document the actual rents received for their
property. If the property was recently purchased and the rental information is
not reported on the 1040 form, the Borrower must provide copies of current leases to support the rental income. If the
appraiser reports market rents that are less than the leases shown by the Borrower, the discrepancy must be addressed, and clarified.
Borrower is constructing a new house on land he owns and Borrower will
serve as the general contractor. Maximum financing is available only if the
Borrower receives no cash back at closing. The LTV will be calculated on the
- The current appraised value of the property plus allowable closing
- The documented acquisition cost of the property (builder’s costs and
all the subcontractor’s charges plus the documented original Cost of the Lot (can use the current appraised value of the lot if the Borrower has owned it for at least 6 months)
plus all costs associated with the construction loan obtained by the Borrower to fund
construction of the house plus the closing expenses (closing costs, prepaids and discount points) paid by the Borrower.