Calculating NEW FHA Loans
Calculating FHA loans. Recent HUD changes to calculating maximum loan amounts has greatly reduced the total funds required to close from the buyer. However, many buyers have been unable to receive the benefits from the new legislation because of the confusion in interpreting the new program changes. Heres how to put HUD's new legislation to work for you.
The New Guidelines. HUD simplified the
method 'two-fold'. The first step consists of applying a maximum LTV using lesser of the
sales price or appraised valute. The final down payment is determined by new factors which
are based upon the sales price as follows:
Minimum Cash Investment. The next step is verifying that the application has a minimum 3 percent "cash investment" into the property. Note:new calculations make for final down payments that range from 1.25 percent to 2.85 percent. The 3 percent cash investment rule means borrower must pay 3 percent of the sale price toward the down payment and borrower paid cloing costs.
Example. Assume a $100,000 sales price and appraised value. Using the factor as per the chart of 97.65%, we get a maximum base loan amount of $97,650. Our down payment is 2.35% or $2,350. In order to meet the 2% cash investment requirement, the borrower must put $3,000 toward the down payment and closing costs, or, $2,350 down payment plus $650 toward closing costs.
Structuring the Transaction. In order to facilitate the least amount of funds needed from the borrowers at closing, have the purchase contact written up so that the seller pays for all the remaining closing costs and prepaids. For example: "Buyer will pay for the down payment and 'xxx' of his/her own closing costs. Seller will pay for the borrower's prepaids and the remainder of the closing costs, not to exceed 'xxx'." If the seller will not pay for any of the borrower's closing costs, the results are the same if the lender pays the excess closing costs through premium pricing.
I hope that this information has been helpful to you. For more information, don't hesitate to contact me.