FHA Guidelines

Below are underwriting guidelines an FHA consultant analyzes when determining eligibility for the FHA loan program. Schedule a Consultation.

FHA Standard Loan Limits

2010 FHA loan limits are calculated at 125% of the area median sales price and the ceiling is calculated at 175% of the conventional floor as follows:

  • 1-Unit 2-Units 3-Units 4-Units
  • Minimum(Floor)$271,050 $347,000 $419,000 $521,250
  • Maximum(Ceiling)$729,750 $934,200 $1,129,250 $1,403,400

Click here to find out the FHA Loan limit in your area.

Loan Terms and Fixed-Period ARMs

The following loan terms are available on FHA transactions:

  • Fixed rate: 10-, 15-, 20-, 25-, and 30-year terms
  • Fixed-period adjustable-interest rates (ARMs): 30-year term only
  • Eligible programs:
    • FHA 203(b) – 1-4 unit family mortgage insurance program
    • FHA 234(c) – condominium unit mortgage insurance program
    • FHA 203(h) – mortgages for disaster victims
    • FHA 203(k) – Rehabilitation mortgage insurance program

Property Type and Occupancy

HUD does not insure non-owner purchase transactions. However, HUD will insure a refinance of a non-owner-occupied fixed-rate loan under the Streamline refinance program. Refer to Streamline Refinance for additional information.

Primary Residence

A primary residence is a property that will be occupied by the borrower the majority of the calendar year and meets the following criteria:

  • 1-4 units family homes, PUDs, Site condominiums, FHA-approved condominiums, and HUD-owned properties.
  • At least one borrower must occupy the property and sign the Note and security instrument for the property to be considered owner-occupied.
  • The borrower must occupy the property within 60 days after the loan closes with continued occupancy for at least one year. The only exceptions allowed are due to hardship or extenuating circumstances.
  • 3-4 unit properties require an Occupancy Declaration to be included in the loan file.
  • There is no limit on the maximum acreage for FHA loans.

Generally, FHA will not insure more than one mortgage for any borrower. Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance, except under the conditions below:

  • Relocation: If the borrower is relocating and reestablishing residency in another area not within reasonable commuting distance from the current principal residence (generally at least 50 miles away), the borrower may obtain another mortgage using FHA-insured financing and is not required to sell the existing property covered by a FHA-insured mortgage. Refer to the local FHA Homeownership Center for detailed information.

Second Primary Residence

  • Increase in family size: The borrower may be permitted to obtain another home with a FHA-insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family’s needs. The borrower must also:
    • Provide satisfactory evidence of the increase in dependents and the property’s failure to meet the family’s needs.
    • Pay down the outstanding mortgage balance on the present property to a 75% or less loan to value ratio, exclusive of any financed mortgage insurance premium.
  • Vacating a jointly owned property: If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another FHA-insured mortgage. Acceptable situations include instances of divorce after which the vacating ex-spouse will purchase a new home or one of the co-borrowers will vacate the existing property.
  • Non-occupying co-borrower: A non-occupying co-borrower on an FHA-insured mortgage being purchased as a principal residence by other family members may have a joint interest in that property as well as the principal residence that is covered by an FHA mortgage.

Properties Listed for Sale

Refinances on properties listed for sale are not permitted. Properties previously listed for sale must have been off the market and the listing canceled in the time frames described below:

  • Rate and Term Refinances: The listing agreement must be canceled at least one day prior to the date the loan application is taken.
  • Cash Out Refinances: Listing agreements on the subject property must be canceled six months prior to the loan application date or the loan is subject to a maximum loan-to-value of 70%.

In all circumstances, listing agreements must be canceled prior to the loan application. A copy of the canceled/expired listing should be placed in the file and a search of the current multiple listing service should be completed to verify that the property is not currently listed by a different agency.

Note: This policy does not apply to FHA Streamline loans.

Eligible Borrowers

Eligible borrowers include individuals and investors (under limited circumstances). Eligible borrowers must provide evidence of valid Social Security numbers (SSN) on all FHA loans. Evidence includes a copy of the borrower’s:

  • Social Security card (Tax Identification numbers (TINs) are not allowed)Or
  • Pay stub, W-2, or other government-issued card that includes the borrower’s Social Security number.

In addition, FHA requires validation of Social Security numbers for consistency with the borrower’s name and date of birth through FHA Connection and ECHO systems or its equivalent.

Non-Permanent Residents

Non-permanent resident aliens are eligible provided they:

  • Occupy the property as a principal residence
  • Have a valid Social Security number
  • Are eligible to work in the United States

Escrow/Impound Accounts

Escrow/impound accounts are required for property taxes and insurance. The amount must be included in qualifying ratios. 

Non-FHA to FHA If the property was acquired less than one year before the loan application and is not already FHA-insured, the original sales price of the property (rather than the appraised value) must be used in determining the maximum mortgage. With conclusive documentation, expenditures for repairs and rehabilitation incurred after the purchase of the property may be added to the original sales price when calculating the mortgage amount.

Cash-Out A cash-out is a first lien in which the loan proceeds may include the funds required to pay off any existing liens, related prepaids, closing costs, and the disbursement of cash to the borrower.

Streamline Refinance The FHA Streamline refinance program is designed to lower the monthly principal and interest payments on a current FHA-insured mortgage. Streamline refinances are subject to the following requirements:

  • A minimum 640 credit score is required. Note: The credit report is only used to validate the credit score on FHA non-credit qualifying Streamline transactions.
  • Cash-back to the borrower is not allowed with the exception of minor adjustments at closing provided the amount does not exceed $500.
  • Allowed with or without an appraisal
  • Must result in an immediate payment reduction to the borrower
  • Non-owner-occupied ARM or fixed-period ARM loans are not eligible for the Streamline refinance program.

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