How to Determine the FHA Loan Amount Available to You

If you are getting ready to buy a house and are trying to finance your mortgage through an FHA loan, then you’ll want to know the FHA loan amount you are entitled to. This depends on several factors, including things like income, how much money you owe to other people, where you live, and the type of loan you want. The rules and regulations for an FHA loan are set by HUD and the FHA. Here are a few of the things you need to know in order to get an FHA loan:

Your Income to Loan Ratio

First, all lenders want to know if the person borrowing money can pay it back. In order to determine this, they do a check of your gross income, which is your income before taxes. The rules and regulations set down for an FHA loan amount dictate that a person can spend up to 29 percent of their monthly income on housing costs. You can include the income of both a husband and wife to determine your ratio.

Your Debt to Income Level

Next, the lender wants to know how much money you owe everyone else. The FHA uses a formula that takes into consideration your housing costs and how much you owe other creditors. They also will add in things like student loans, car payments, etc., and calculate a proposed mortgage payment on the loan you desire for the house you want to buy. For an FHA loan amount this total can’t exceed 41 percent of your total gross income.

Where You Live

Believe it or not, where you live makes a difference in whether or not you can get an FHA loan because each county has a limit on how many FHA loans they can issue. It also depends on the average price of homes in your area. This has caused controversy as some people think that FHA loan amounts should not be allowed for the purchase of expensive homes. FHA guaranteed loans were intended for middle class families. However, so far there are still no restrictions on the price of homes allowed through this program.

Kind of FHA Loan You Want

There are differences in the amount of money you can get on an FHA loan depending on the kind you need. If you are refinancing, for example, you can only get 85 percent of the cost of the home. Plus, depending on the type of structure, the amount could be limited. For instance, if it is a multi-family or a single family home this can make a difference in the amounts allowed.

Down Payment

A down payment may also be required with an FHA loan. The usual amount is at least 3.5 percent of the home’s cost. Sometimes you can get an FHA loan without a down payment, but not always.