U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000
ASSISTANT SECRETARY FOR HOUSINGFEDERAL
September 5, 2008
MORTGAGEE LETTER 2008 – 23
For your information.
Call if you have any questions …..
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:
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….”;
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
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:
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.
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.
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.
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
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
Calculation of the maximum mortgage:
The maximum mortgage is calculated by
applying 96.5 percent to the
of either a) the appraiser’s estimate of value or b) the
contract price for the property minus any required adjustments.
Sales Price: $218,000 Appraiser’s Estimate of Value: $220,000
Maximum Mortgage: $218,000 x 96.5% =
Downpayment: $218,000 – 210,370 =
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
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.
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% =
Downpayment Calculation: $218,000 – $207,475 =
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
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.)
: 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.
Appraiser’s Estimate of Value: $220,000 UFMIP of 1.5%
Maximum Mortgage before adding UFMIP =
Maximum Mortgage w/UFMIP = $216,749 + $3251 =
LTV before UFMIP: $216,749/$220,000 =
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-
If you have any questions regarding this Mortgagee Letter, call 1-800-CALLFHA.
For illustrative purposes only. UFMIP percentages will vary.