Great news friends – homebuyers in the DFW metro (and surrounding areas) will see increased purchasing power thanks to FHA’s decision to increase loan limits beginning his January (2016). Previously the max loan amount for Dallas – Fort Worth area was $310,500 which means buyers could buy a $321,750 home by putting the very minimum down. However, as of January 2016 the max loan amount increased to $334,650! This means buyers can buy a $346,787 home with the minimum 3.5% down payment – an increase of $24,900 in purchasing power!! This is GREAT news!
To find out the max loan amount in your specific county follow this link FHA Max Loan Amount Search!
I’ve had several FHA questions lately so I thought I’d include some tips and rules of thumb for you to use as a reference guide. With FHA’s max loan amount increasing and conventional loan credit guidelines still a little tight FHA is becoming more and more popular.
31/43 qualifying ratios (aka Debt-to-Income ratios) – this means that your client’s total monthly payments (those that report to the credit bureaus) + their house payment (PITI) should not exceed 43% of their GROSS monthly income. The first number (31) represents the percentage of their income that the house payment (PITI) alone should not exceed. These guidelines can sometimes be exceeded with an automated-underwriting decision (computer generated approval): Example, the Holmes’s earn $5000 p/mo (total farceJ) before any taxes are withheld. In this case the Holmes’s should keep their total house payment close to $1550 and their total monthly payments (credit cards, auto & boat loans, student loans, etc.) + the total house payment close to $2150. Again, with automated underwriting lenders can typically get outside these ratios….but these are good rules of thumb.
$334,650– this is the max loan amount in the DFW area. Can the sales price be higher than this loan amount?
Yes, absolutely! As long as your client has money to put towards a down payment so that the loan amount is not exceeding the max in your county, the sales price can exceed the max loan amount. For example, you can purchase a $400,000 home with an FHA loan as long you put down enough money to bring the loan amount down to $334,650. This works GREAT for clients that may have a few bumps/bruises on their credit report yet have a stockpile of cash for down payment.
Now, assuming they are putting the very minimum down of 3.5% they’d be able to purchase a home with a sales price of $346,787 with an FHA Loan.
Example – purchase price = $346,000….3.5% down payment = $12,110…..loan amount = $333,890
PLUS, the seller is allowed to pay their closing costs (as long as it’s negotiated)!
PLUS PLUS, the entire down payment can be a gift!!
Go HERE to search your specific county FHA Max Loan Amount Search!
What is the down payment requirement? – FHA requires a minimum 3.5% cash investment. Can this be a gift?
Yes! The entire 3.5% can be a gift!
What are the non-allowables? – What dollar amount should you put in the contract for FHA non-allowables? NONE, ZERO! Those were the old days! The only non-allowable is the tax service fee which is typically less than $80. This can easily be absorbed by a lender.
Is there a minimum credit score? – Most lenders have gone to a 640 credit score requirement. Although FHA does not have a published minimum credit score lenders have noticed a pattern of poor performance with credit scores lower than 580. We will allow for as low as a 600 credit score on our in-house product.
According to Cole, this is GREAT news!