8/06/2021

FHA Loans

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FHA Loans


 

FHA loan limits are derived from the loan limits adopted by the Federal National Mortgage Corporation (Fannie Mae-FNMA) and the Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC). The 2021 maximum conforming loan limit for a single-family home will be $548,250. That’s an increase of $37,850 from the 2020 baseline limit of $510,400. This marks the fifth year in a row that federal housing officials have raised the baseline.


LOW-COST AREA OR FLOOR

The FHA national low-cost area mortgage limits, which are set at 65 percent of national
conforming limit of $548,250 for a one-unit Property, are, by property unit number, as follows:

  • One-unit: $356,362 (FHA limit can be this low AKA the Floor)
  • Two-unit: $456,275
  • Three-unit: $551,500
  • Four-unit: $685,400

HIGH-COST AREA OR CEILING

The FHA national high-cost area mortgage limits, which are set at 150 percent of the national conforming limit of $548,250 for a one-unit Property, are, by property unit number, as follows:

  • One-unit: $822,375 (FHA limit can be this high AKA the Ceiling)
  • Two-unit: $1,053,000
  • Three-unit: $1,272,750
  • Four-unit: $1,581,750

SPECIAL EXCEPTIONS FOR ALASKA, HAWAII, GUAM, AND THE VIRGIN ISLANDS

Mortgage limits for the special exception areas of Alaska (AK), Hawaii (HI), Guam (GU) and the Virgin Islands (VI) are adjusted by FHA to account for higher costs of construction. These four special exception areas have a higher ceiling as follows:

  • one-unit: $1,233,550
  • Two-unit: $1,579,500
  • Three-unit: $90,9125
  • Four-unit: $2,372,625

Maximum Mortgage Term

The maximum mortgage term may not exceed 30 years from the date that amortization begins. FHA does not require that mortgage terms be in five-year multiples. [1]

REFINANCES: LTVS DICTATED BY LOAN PURPOSE

Cash-Out Refinance

Maximum Mortgage Amounts

  1. Standard
    1. Maximum Loan-to-Value The maximum LTV is 80 percent (80%) of the Adjusted Value.
    2. Maximum Combined Loan-to-Value (CLTV): The maximum CLTV is 80 percent (80%) of the Adjusted Value.
    3. Nationwide Mortgage Limit: The combined mortgage amount of the first Mortgage and any subordinate liens cannot exceed the Nationwide Mortgage Limit described in National Housing Act’s Statutory Limits.

No Cash-Out Refinance

Maximum Mortgage Amount

  1. Maximum Loan-to-Value Ratio LTV for a Rate and Term refinance is:
    • 97.75 percent for Principal Residences that have been owner-occupied for previous 12 months, or owner-occupied since acquisition if acquired within 12 months, at case number assignment.
    • 85 percent for a Borrower who has occupied the subject Property as their Principal Residence for fewer than twelve months prior to the case number assignment date; or if owned less than twelve months, has not occupied the Property for that entire period of ownership; or
    • 85 percent for all HUD-approved Secondary Residences.

MORTGAGE INSURANCE PREMIUMS

FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States. FHA mortgage insurance provides lenders, not borrowers, with protection against loss if a property owner defaults on their mortgage.

FHA is funded by the mortgage insurance premiums it collects from borrowers through the lenders making the loans. FHA sets the premiums paid by the borrowers and they are based on the revenue needs of the FHA Mutual Mortgage Insurance Fund (MMIF) to remain solvent and achieve the risk ratios of liquidity, including future cash flows, vs. insurance in force established by Congress. The Congressionally mandated capital ratio threshold for FHA is 2%. That is the capital reserve account vs. the present balance of all loans insured by FHA.

At the end of Fiscal Year 2019 the FHA was in a very healthy financial position. For 2019 the fund’s net worth almost doubled from FY 2018 increasing from $34.8 Billion to $62.38 Billion. The capital reserve ratio was a whopping 4.84%.[1]

This increase has caused significant pressure on FHA to reduce mortgage insurance premiums to consumers, but that pressure has yet to impact FHA.

Below are the current mortgage insurance premiums based on LTV, Product, Loan Amount and Term. It also provides the duration (11years vs. full loan term) that the insurance must remain in force and the consumer must pay premiums. [2]

FHA has different premiums that are solely up-front mortgage insurance premiums for loans made in the Hawaiian Home Lands referred to as Section 247 mortgages.

RECENT FHA UPDATES

Mortgagee Letter 2020-20

FHA changes as a result of the COVID-19 National Emergency.

Many of the recent changes adopted by FHA came in the form of changes to FHA guidelines and rules due to restrictions put in place to fight the COVID-19 virus. This course will focus on the FHA update associated with the necessary lender accommodations outlined in ML 2020-05 and extended in Mortgagee Letter 2020.20.

On March 13, 2020, President Trump declared a National Emergency concerning the Coronavirus (COVID-19) Outbreak and initiated actions to stem the threat to public health and the American economy.

On March 27, 2020, HUD published Mortgagee Letter 2020-05, through which the Secretary of HUD authorized flexibilities to the re-verification of employment and Acceptable Appraisal Reporting Forms and Protocols (Appraisal Protocols) by allowing exceptions for Exterior-Only and Desktop Appraisal inspections in certain transactions. Due to the continuing national emergency caused by the COVID-19 pandemic, HUD issued this 2020-20 to extend the modifications issued in ML 2020-05.

Extension of the Effective Date of Mortgagee Letter 2020-05 by 2020-20 provided for ongoing tolerance of Reverification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for FHA Single Family Programs Impacted By COVID-19.

This 2020-20 Mortgagee Letter announces a re-extension of the effective date of Mortgagee Letter 2020-05, published on March 27, 2020. This second extension will allow industry partners additional opportunity to utilize flexible guidance related to reverification of employment and appraisal protocol for FHA Single Family Programs affected by COVID-19.

These changes apply to FHA Single Family Title II Forward and Reverse Mortgage Programs.

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