Calculate how much you need to make a year to get a certain size mortgage loan.
The Federal Housing Administration, a division of HUD, insures mortgage loans if the borrower defaults on their obligation. Most FHA programs are designed to help low income applicants, first time home buyers, disaster victims, minorities, and individuals needing down payment assistance. Down payments for FHA loans can come from the applicant, a family member, an employer or charitable organizations. American Dream Down Payment Initiative is a program which provides down payment, closing costs and rehabilitation assistance to eligible individuals. The funds are provided by HUD and administered by local housing agencies. FHA requires the borrower to contribute a 3% down payment. But unlike conventional loans, this is not always easy to calculate. They are many factors to consider. The property’s sales price, subject to certain required adjustments, or the appraised value, if less, is multiplied by the loan-to-value ratio. This figure is the maximum mortgage that FHA will insure. The borrower must make a cash investment at least equal to the difference between the sales price and the resulting maximum mortgage amount. The maximum LTV limits are functions of the appraised value or adjusted sales price (whichever is less) and the average closing costs for the state the property is located in. Closing coasts are broken down into two categories: at or below 2.1% of the sales price and above 2.1% of the sales price. Closing costs defined as FHA approved non-recurring costs required to do the loan.
If the average closing costs are 2.1% or less the borrower would owe:
- 1.25% (LTV 98.75) Properties equal to or less than $50,000
- 2.35% (LTV 97.65) Properties greater than $50,000 up to $125,000
- 2.85% (LTV 97.15) Properties greater than $125,000
If the average closing costs are more than 2.1% the borrower would owe:
- 1.25% (LTV 98.75) Properties equal to or less than $50,000
- 2.25% (LTV 97.75) Properties greater than $50,000
Borrower paid closing costs can count toward the 3% minimum cash investment. Discount points and prepaid items are not included. If the borrower pays for the appraisal and credit report with a credit card, this does not count toward the minimum investment. Closing costs paid by the seller or lender are not considered part of the 3% but rather are contributions limited to 6%. The maximum mortgage amount can be increased in some situations: Repairs and improvements needed to make the property eligible for FHA, energy related weatherization items and solar energy systems. Generally increases are only allowed when the appraised value exceeds the sales price, except for solar energy systems. Certain transaction types affect the maximum mortgage calculation: a family member purchases another family member’s home, properties with non-occupying co-borrowers, three- and four-unit properties, a house that will be constructed by the borrower on their land, payoffs of land contracts, and transactions involving properties under construction or less than one year old.