The FHA 203(b) Loan Program - STM Partners

Loan Terms, Continued
Transactions
Affecting
Maximum
Mortgage
Calculations,
(continued)
Three and Four Unit Properties
• Maximum mortgage is limited so that the ratio of the monthly mortgage payment
(PITI plus Homeowners association dues, if applicable) divided by the monthly
net rental income does not exceed 100%.
• The monthly payment includes principal, interest, taxes, insurance, monthly
mortgage insurance, and homeowner’s association dues computed at the note
rate.
• No considerations for buydowns may be given.
• Net rental is the appraiser’s estimate of fair market rent from all units, including
the unit the borrower will occupy, less the FHA allowance for vacancies and
maintenance (or 25% if the local FHA has not established a separate allowance).
• The projected rent may be considered only as gross income for qualifying
purposes, and not used to offset the monthly mortgage payment.
• Three (3) months reserves (PITI) after closing are required on all transactions.
The LTV/TLTV may not exceed 85% on a cash-out refinance.
Building On Own Land
• Maximum financing is available if the borrower receives no cash from the
settlement. LTV limits are applied to the lesser of:
• the appraised value or
• the documented acquisition cost, which includes the following:
• builder’s price, or the sum of all subcontractor’s bids, materials, etc.,
• cost of the land (value may be used if land was owned more than 6 months
or was received as an acceptable gift),
• interest and costs from the construction loan obtained by the borrower to
fund construction of the property, and
• closing costs and reasonable discount points paid by the borrower.
• Equity in the land may be used for the borrower’s entire down payment.
• If the borrower receives cash at closing exceeding $250, the loan is limited to
85% of the sum of the appraised value plus closing costs.
Paying Off Land Contracts or Refinance Properties Subject to Ground Rent
• If the borrower will use the loan to complete payment on a land contract, contract
for deed, or other similar type financing arrangement where the borrower does
not have title to the property, the new mortgage may be processed as either a
purchase or a refinance transaction with maximum insured financing if the
borrower receives no cash at closing.
• if all loan proceeds are used to pay the outstanding balance on the land contract
and eligible repairs, renovations, etc., the appropriate loan-to-value ratio is
applied to the lesser of:
• the appraised value, or
• the total cost to acquire the property plus allowable closing costs and, if
treated as a refinance, reasonable discount points.
Continued on next page
Section 2.22 July 27, 2012
FHA 203(b) Loan Program Page 16 of 217
Correspondent Seller Guide