When qualifying for a Mortgage Loan, many factors are considered when calculating the Maximum Loan available. Most importantly you should consider a monthly payment you can afford that works for your family’s budget. Just because you can qualify for x loan amount doesn’t mean that you can comfortably afford y payment associated with that loan amount. While I believe a mortgage is an important piece of most folks’ finance it is important to make sure that other financial buckets such as retirement and emergency funds are filled. For the sake of understanding loan guidelines, let’s make the extraordinary assumption that monthly payment comfort/affordability is not being factored into the math below.
1.) Loan Type – The type of mortgage that you apply for can determine the maximum amount of loan you qualify for. Some banks or mortgage lenders have their own portfolio loans and will set their own guidelines or may not have access to all products available on the marketplace. For conventional loans the guidelines are set by FHFA who is overseen by Congress, and you often will hear referred to as Fannie Mae/Freddie Mac. They typically securitize the largest share of loans in this country. They have a standard or ‘base line limit’ for all counties in the US. There is a higher limit for certain counties with higher incomes/home prices. There is also a higher loan limit based on number of units up to 4 units. The image below represents the current FHFA loan limits as posted on their website.
For Department of HUD backed FHA Loans there is a lower ‘floor’ which is demonstrated in the chart below. These numbers can be found on HUD’s site. Each county has a different max loan amount which can be found here. For example in the Portland, OR metro regions FHA loan limits are capped at $695,750 for single units. In Salem, OR, or Marion County (1 hour south), the limit is only $524,225
VA Loans – if you qualify for a VA loan and have your full entitlement, there is no loan limit – essentially you can get as large of a loan as the lender will accept with zero down payment. For more information you can see the va.gov website.
USDA Loans – USDA loan guidelines are a little different, instead of putting a limit on the loan amount you can receive the place geographical restrictions (only available in rural areas see map), as well as income restrictions. This means that if your household income is under the local county limit, the property is an eligible location, and you pass the underwriting requirements you can qualify for a USDA loan.
Portfolio Loans – in addition to the standard conforming and government backed loans there are jumbo loans and portfolio loans that can go as high as the lender will allow.
HELOC’s & Second Mortgages – additional mortgages can also be added to your property, their loan amount is typically constrained by the amount of equity you have.
2.) Property Value/Equity – while loan type plays a major role in determining your Loan to Value ratio (LTV) or your equity position also will determine the maximum loan you can acquire. LTV is calculated by dividing the loan amount by the appraised loan value (i.e. $400,000 Loan amount, $500,000 home = 80% LTV). The chart below shows the maximum LTV possible for conventional loans as delineated by occupancy, as well as unit count. This will vary by loan program. FHA allows for up to 96.5% LTV while VA and USDA both go up to 100% LTV.
3.) Occupancy – please note the chart above shows the LTV limits for different occupancies. Occupancy is defined by the intent of purchase: primary is the place you intend to live in within 60 days of close for the next year or more, secondary is akin to a vacation home, and defined as a home you will live in some portion of the year, investment is a home that you will not occupy for the next year and will be used as a rental property. All government backed loans (FHA, VA, USDA) are for primary purchase only. Portfolio loans have their own requirements based on occupancy and are for the most part more stringent than the guidelines above (not always).
4.) Number of Units – the chart above shows the max LTV based on the number of units for conventional loans. FHA does allow up to 96.5% LTV on 2-4 unit properties but please note you must meet a self-sufficiency test showing that 75% of the appraiser’s allocated market rains for the units must be equal to or greater than the total monthly payment.
5.) Debt Ratio and Credit Score – in addition to all of the factors listed above you must have a debt-to-income ratio and credit score that meets loan program standards in order to be able to qualify for the particular loan amount. A good loan officer should be able to help you understand how the maximum loan amount you can qualify for with multiple different programs will be calculated and what in your financial profile is influencing this maximum amount. If you would like an Indvidual consultation, please reach out.