Revised FHA Down Payment and Maximum Mortgage Requirements – Mortgagee Letter 2008-23

In Client and Friends Memos, FHA by BMG Memorandum

Pursuant to the requirements of the Housing and Economic Recovery Act of 2008 (HERA) that become law on July 30, 2008, FHA is revising its down payment and maximum mortgage requirements effective January 1, 2009, for all new FHA case number assignments on or after that date. A copy of Mortgagee Letter 2008-23 (ML 2008-23) is attached to this memorandum and provides some guidance regarding the revised down payment and maximum mortgage requirements for single family mortgages insured by FHA. In summary, the Housing and Economic Recovery Act of 2008 (HERA) provides as follows: 1. Effective January 1, 2009, increases the FHA maximum mortgage amount for a single family residence to the lesser of (i) 115% of the local area median single family house price or (ii) 150% of the Freddie Mac loan limit (the current Freddie Mac loan limit is $417,000, so 150% of that is $625,500), not to exceed 100% of the property’s appraised value (with any upfront mortgage insurance premium (UFMIP) included in the mortgage amount); 2. Sets an FHA maximum mortgage amount floor at 65% of the Freddie Mac loan limit ($417,000 x 65% = $271,050); and 3. Increases the FHA minimum cash down payment requirement to 3.5% based on the appraised value of the property. In summary, ML 2008-23 provides as follows: 1. Rescinds, in their entirety, the following Mortgagee Letters: ML 2003-01; 2000-44; and 98-29; replaces 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. 2. The revised minimum 3.5% down payment requirement described in ML 2008-23 takes effect with all new FHA case number assignments on or after January 1, 2009. 3. In determining the minimum 3.5% cash down payment amount, the lesser of (i) the appraised value or (ii) the sales price (minus any required adjustments) will still be used. 4. Closing costs may not be used to help meet the minimum 3.5% down payment requirement. 5. The UFMIP (or a portion thereof) may be added to the mortgage amount as long as this adjusted mortgage amount does not exceed the lesser of (i) the appraised value or (ii) the adjusted sales price. 6. 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. 7. Sellers are still permitted to provide financing concessions up to 6% of the sales price. Amounts exceeding 6% must be subtracted from the sales price (or appraised value, if less) before applying the down payment percentage multiplier. Other inducements to purchase, as described in handbook HUD-4155.1 REV-5, must also be subtracted from the sales price or appraised value, as appropriate, in calculating the maximum mortgage amount/down payment. In such cases, the actual down payment is increased by the amount of the inducement. 8. Refinances, including FHASecure refinances, are not subject to the 3.5% down payment requirement since there is no down payment on a refinance. The LTV will still be calculated by dividing the loan amount, prior to adding the UFMIP, by the appraised value. However, the loan amount, including the UFMIP, may not exceed the appraised value for all new case number assignments made on or after January 1, 2009

Complete Memorandum