If you plan to use an FHA loan to buy a house, you’ll be limited to a certain loan-to-value ratio, or LTV. The maximum loan-to-value for the FHA mortgage insurance program is 96.5%, according to official HUD guidelines. This means eligible borrowers can make a down payment as low as 3.5% of the home’s value or purchase price.
Maximum Loan-to-Value Ratio for FHA Program
One of the reasons the FHA loan program appeals to borrowers is because it allows for a relatively low loan-to-value (LTV) ratio. This means borrowers can purchase a home using this program with a fairly low down payment, as low as 3.5% with a minimum credit score of 580.
The maximum loan-to-value requirement can be found in HUD Handbook 4000.1 (also known as the Single Family Housing Policy Handbook). In Part II of the handbook, within a section entitled “Allowable Mortgage Parameters,” we find the following:
“For purchase transactions, the maximum LTV is 96.5 percent of the Adjusted Value.”
Note: This requirement is for home purchase loans, in particular. HUD has different guidelines for special programs and products, including refinances. The maximum LTV for those programs are based on requirements listed in the “Programs and Products” section of the 4000.1 handbook.
As shown in the graphic above, the LTV ratio for an FHA loan can be determined by dividing (A) the loan amount by (B) the appraised value of the home being purchased.
Credit Scores Play a Role Here
To recap, the maximum loan-to-value ratio for FHA home purchase mortgages is 96.5%. This is what the Federal Housing Administration refers to as “maximum financing.”
In order to be eligible for this max financing, borrowers must meet certain credit score requirements. In short, home buyers who want to make the lowest possible down payment (3.5%) must have a score of 580 or higher.
Here’s how credit scores relate to the maximum LTV for FHA loans:
- To qualify for maximum financing (with a loan-to-value up to 96.5%) the borrower must have a “minimum decision credit score” of at least 580.
- If the borrower’s credit score falls between 500 and 579, her or she will be limited to a max LTV ratio of 90%.
- Borrowers with credit scores below 500 are generally not eligible for the FHA loan program.
The table below occurs on page 159 of the Single Family Housing Policy Handbook, and reiterates the information in the bullet points above:
In addition the maximum LTV percentages above, there are dollar-amount limits for borrowers using an FHA loan to buy a house. These are aptly referred to as “FHA loan limits.” They vary by county because they are based on median home prices. You can find the limits for your county with a quick Google search, or by visiting LoanLimits.org.
Notes and disclaimers: This article explains the maximum loan-to-value / LTV ratio for FHA loans. This information was adapted from HUD Handbook 4000.1 in July of 2018. We work hard to ensure the accuracy of our content. But there’s still a chance this page could become outdated over time, as HUD makes changes to the FHA program. To access the most current information, refer to HUD.gov or download the official handbook mentioned above.