Maximum Mortgage Amount

a.	Mortgage Caps. Mortgages are set based upon established loan-to-value criteria and the borrower’s ability to pay. However all Section 184 loans are capped by two criteria:

1.	No mortgage may exceed 97.75 percent of the appraised value of the property excluding closing costs (or 98.75 percent if the appraised value is $50,000 or less).

2.	All mortgages are capped at 150 percent of the FHA loan limits for the area. This is the Section 184 mortgage limit. Loan limits are available from the ONAP and are also published periodically in the Federal Register and on the Internet at: www.hud.gov.

b.	Acquisition Cost. The acquisition cost is the documented sales price of the property (or the contractor’s price to build as stated in the written cost estimate) plus the allowable closing costs paid by the borrower and other specific items that may be needed to close (see Paragraph 5.17).

In addition to the Section 184 mortgage limit and the loan-to-value ratio based on the appraised value of a property, the maximum guaranteed mortgage offered on any property is calculated by applying the loan-to-value limitation to the acquisition cost.

1.	97.75 percent of the acquisition cost as of the date it is accepted for guarantee (the date of closing); or

2.	98.75 percent of the acquisition cost if the acquisition cost is $50,000 or less as of the date it is accepted for guarantee (the date of closing).

c.	Determining Maximum Mortgage Amount. Lenders should calculate the maximum mortgage amount as follows:

1.	Calculate 150% of the area’s FHA mortgage limit;

2.	Calculate 97.75% of the appraised value excluding closing costs (or 98.75% if the appraised value excluding closing costs is $50,000 or less) (*see d. below for definition of appraised value when rehabilitation is involved);

3.	Calculate 97.75% of the acquisition cost (or 98.75% if the acquisition cost is $50,000 or less);

4.	Compare the amounts calculated under steps 1, 2 and 3. The lowest amount is the maximum allowable mortgage.

Note that the loan guarantee fee, which is added to the mortgage amount, does not affect calculation of the maximum allowable mortgage (paragraph 5.20a).

Examples of the maximum mortgage calculation are found in Exhibit 5-3 for properties with an appraised value or sales price more than $50,000 and in Exhibit 5-4 for properties less than $50,000. In addition, refer to the Mortgage Credit Analysis Worksheet found at Appendix 4.

Exhibit 5-3: Determining the Maximum Mortgage Amount
for Properties Over $50,000

Appraised Value:	$120,000
Sales Price or Construction Cost:	110,000
Allowable Closing Costs:	4,000
FHA Mortgage Limit:	95,000

1. Section 184 mortgage limit:

$95,000
x 150%
= $142,500

2. Loan-to-value cap based on appraised value:

$120,000
x 97.75%
= $117,300

3. Loan-to-value cap based on acquisition cost:

Sales price/construction cost plus closing cost:

$110,000
+ $4,000
= $114,000

Acquisition cost:

$114,000

Loan-to-value ratio based on acquisition cost:

$114,000
x 97.75%
= $111,435

Maximum mortgage amount (lowest of 1, 2, or 3): (without the guarantee fee)

$111,435

Exhibit 5-4: Determining the Maximum Mortgage Amount
for Properties Under $50,000

Appraised Value:	$45,000
Sales Price or Construction Cost:	46,250
Allowable Closing Costs:	3,000
FHA Mortgage Limit:	95,000

1. Section 184 mortgage limit:

$95,000
x 150%
= $142,500

2. Loan-to-value cap based on appraised value:

$45,000
x 98.75%
= $44,437

3. Loan-to-value cap based on acquisition cost:

Sales price/construction cost plus closing cost:

$46,250
+ $3,000
= $49,250

Acquisition cost:

$49,250

Loan-to-value ratio based on acquisition cost:

$49,250
x 98.75%
= $48,634

Maximum mortgage amount (lowest of 1, 2, or 3): (without the guarantee fee)

$44,437

Definition of Appraised Value on Purchase and Rehabilitation Loans. Lenders must notify the appraiser at the time the appraisal is requested, of the rehabilitation work, which the purchaser intends to complete and provide applicable contracts, exhibits and plans and specifications. The appraiser must supply a final appraised value based upon the completion of the rehabilitation work. See paragraph 7.4 for additional information.