Revised Downpayment and Maximum Mortgage Requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSINGFEDERAL

HOUSING COMMISSIONER

www.hud.gov espanol.hud.gov

September 5, 2008

MORTGAGEE LETTER 2008 – 23

 

For your information.

 

Call if you have any questions …..

 

Joe Brooks

 

TO: ALL APPROVED MORTGAGEES

SUBJECT: Revised Downpayment and Maximum Mortgage Requirements

The Housing and Economic Recovery Act of 2008 revised the National Housing Act to:

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Require that the mortgagor “shall have paid, in cash or its equivalent…an amount equal to

not less than 3.5 percent of the appraised value of the property….”;

 

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Eliminate the variable loan-to-value limits that were based on the combination of the

property value and the average closing costs of the State where the property is located (also

known as “downpayment simplification”); and

 

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Limit the total FHA-insured first mortgage to 100 percent of the appraised value, and

require the inclusion of the upfront mortgage insurance premium (UFMIP) within that limit.

This mortgagee letter provides guidance to mortgagees regarding the revised downpayment and

maximum mortgage requirements for single family mortgage to be insured by FHA. Please also

note that this mortgagee letter rescinds, in their entirety, the following: ML 2003-01; 2000-44; and

98-29. These instructions also replace the maximum loan-to-value percentage charts on pages 1-7,

1-20, and 1-24 of handbook HUD-4155.1 REV-5, and page 4 of ML 2008-13.

 

Additional Information Regarding the Revised Downpayment/Maximum Mortgage

Requirements and Downpayment/Mortgage Amount Calculation Examples:

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Effective Date:

The revised downpayment requirement as described throughout this

mortgagee letter takes effect with all new FHA case number assignments on or after

January 1, 2009.

 

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Closing costs:

Closing costs may not be used to help meet the minimum 3.5%

downpayment requirement. Closing costs are not considered in the mortgage

amount/downpayment calculation for purchase money mortgages.

 

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LTV:

For purchase money mortgages, the LTV is 96.5 percent, i.e., the reciprocal of the

3.5 percent downpayment requirement. The examples that follow will use 96.5 percent and

apply it to the lesser of the appraiser’s estimate of value or the adjusted sales price. The

examples do not include UFMIP or closing costs to be paid by the borrower.

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Premium pricing:

FHA will continue to permit premium pricing, as described in

paragraph 1-9J of handbook HUD 4155.1 REV-5, to pay the closing costs and prepaid

expenses.

 

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Combined loan-to-value ratio (CLTV

): When combined with the FHA first mortgage,

government subordinate liens are not limited to 100 percent. When a unit of government or

an instrumentality of one is offering downpayment and/or closing costs assistance in the

form of secondary financing, the CLTV can exceed 100 percent of the appraised value. The

guidance in paragraph 1-13 of handbook HUD 4155.1 REV-5 remains in effect

 

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Calculation of the maximum mortgage:

The maximum mortgage is calculated by

applying 96.5 percent to the

 

 

lesser

of either a) the appraiser’s estimate of value or b) the

contract price for the property minus any required adjustments.

Example 1

Sales Price: $218,000 Appraiser’s Estimate of Value: $220,000

Maximum Mortgage: $218,000 x 96.5% =

 

 

$210,370

Downpayment: $218,000 – 210,370 =

 

 

$7630

The maximum mortgage shown does not include any upfront mortgage insurance

premium, and the example does not consider any closing costs that must be paid by

the borrower.

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Seller Concessions:

Sellers are still permitted to provide financing concessions up to 6

percent of the sales price. Amounts exceeding six percent must be subtracted from the sales

price (or value, if less) before applying the downpayment percentage multiplier. Other

inducements to purchase, as described in the mortgage credit analysis handbook (HUD-

4155.1 REV-5) must also be subtracted from the sales price or value, as appropriate, in

calculating the maximum mortgage amount/downpayment. In such cases, the actual

downpayment is increased by the amount of the inducement.

Example 2

Sales Price: $218,000 Appraiser’s Estimate of Value: $220,000

Gift Card worth $3000 Adjustment to Sales Price: $218,000 – $3000

Maximum Mortgage: $215,000 x 96.5% =

 

 

$207,475

Downpayment Calculation: $218,000 – $207,475 =

 

 

$10,525

The calculation of the maximum mortgage requires that the gift card value, which

was provided by the builder at closing, be subtracted from the sales price and, thus,

the 96.5 percent applied to $215,000 rather than $218,000. The downpayment, of

course, is calculated by subtracting the mortgage amount from the actual contract

sales price.

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Specialty products with higher LTVs:

Section 203(k), Section 203(h) for disaster victims,

and FHA’s Energy Efficient Mortgage (EEM) programs are not affected by the LTV limit.

All existing policy guidance regarding the rehabilitation program under Section 203(k),

including streamlined (k), mortgage insurance for disaster victims, and the EEM program

remain in effect. (Please note that a separate mortgagee letter announcing higher EEM loan

limits will be published.)

 

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Refinance transactions

: Refinances, including FHASecure refinances, are not subject to

the 3.5 percent downpayment requirement since there is no “downpayment” on a refinance.

The LTV will be calculated, as it has been, by dividing the loan amount prior to adding the

UFMIP by the appraiser’s estimate of value. However, the loan amount, including the

UFMIP, may not exceed 100 percent of the appraiser’s estimate of value for all new case

number assignments made on or after January 1, 2009; this will result in various refinancing

products including rate-and-term, FHASecure (including refinances of both non-delinquent

and delinquent mortgages), streamlined refinances, and cash-out refinances having possibly

different LTVs before adding the upfront mortgage insurance premium.

Example 3

Appraiser’s Estimate of Value: $220,000 UFMIP of 1.5%

 

 

1

Maximum Mortgage before adding UFMIP =

 

 

$216,749

Maximum Mortgage w/UFMIP = $216,749 + $3251 =

 

 

$220,000

LTV before UFMIP: $216,749/$220,000 =

 

 

98.52%

This example assumes that the borrower’s payment of the existing first lien, closing

costs, amount to establish a new escrow account, discount points, etc., yield an

amount before adding the UFMIP of at least $216,749. Any shortfall would require

payment in cash. If less is needed to extinguish the existing mortgage and pay

associated transaction costs, a lower amount is required before adding the UFMIP.

Cash-out and FHASecure refinances have lower LTVs as described in ML 2008-13.

(The amount of mortgage before adding the UFMIP can be determined by adding

the insurance premium percentage, in this example1.5%, to 100% and then dividing

that result into the appraiser’s estimate of value ($220,000/1.015 = $216,749

(rounded up)). The resulting amount substitutes for the “LTV ratio applied to

appraised value” instructions in handbook HUD-4155.1, paragraphs 1-11A1 and 1-

12B1.)

If you have any questions regarding this Mortgagee Letter, call 1-800-CALLFHA.

Sincerely,

1

 

 

 

For illustrative purposes only. UFMIP percentages will vary.

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