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FHA loans, a type of mortgage guaranteed by the Federal Housing Administration, have limits on the amount that homeowners can borrow. If you want to buy a house with a FHA loan, you won’t be able to buy a turnkey mansion: FHA loan limits are based on a percentage of the median house price in each county.
The government guarantee on these mortgages is designed to help low to moderate income borrowers who might otherwise be excluded from the housing market, but it is not meant to force taxpayers into extravagant purchases. This collateral can make FHA loans expensive: borrowers have to pay initial mortgage insurance, as well as monthly mortgage insurance premiums, potentially for the life of the loan.
FHA loan limits explained
FHA loan limits are set at the county level. If you buy a home that costs less than $ 356,362, you don’t have to worry about limits no matter where you live. In 2021, this price represents the floor, or the lowest limit for an FHA loan in any county. This is a significant increase of $ 24,602, or 7.4% from the low of $ 331,760 in 2020.
This limit applies to many counties, and it is more than reasonable given that the national median price for existing single-family homes was $ 313,500 in the third quarter of 2020, according to the National Association of Realtors.
However, you cannot borrow up to the limit just because you get an FHA loan. You can only borrow the amount you are eligible for based on your income, credit, and other factors that lenders assess to determine if you can. afford to pay off the mortgage you are applying. The loan amount also cannot exceed 100% of the appraised value of the property.
What are the FHA loan limits?
FHA loan limits range from 65% of compliant loan limits in most areas of the country to 150% of compliant loan limits in high-cost counties. The conforming loan limit is the largest mortgage a lender can give to a home buyer if they want to sell that loan at Fannie Mae or Freddie Mac. They often do: Selling loans to these huge mortgage market investors helps them get more money than they can use to make more loans.
For 2021, the compliant loan limit is $ 548,250 in most parts of the country. Do the math and you will see that the FHA limit of $ 356,362 is 65% of $ 548,250.
In high cost counties, the FHA loan limit is $ 822,375, or 150% of the compliant loan limit of $ 548,250. The FHA calls its high cost county loan limit the “cap.”
But wait: there is an exception in the really very expensive areas. In Alaska, Guam, Hawaii and the US Virgin Islands, the limit is $ 1,233,550, or 150% of the normal limit. According to the law, the reason for these extra-high limits is the high cost of construction and the shortage of housing in these areas.
Several hundred counties have boundaries that are somewhere between the floor and the ceiling. In these areas, the limit is 115% of the median price of a single-family residence. The easiest way to find out the FHA loan limit for the area where you shop at home is to use the FHA mortgage limits research tool.
Here are some examples of counties where these limits apply (and their largest cities):
- Boulder County, Colorado (Boulder): $ 654,350
- Coconino County, Arizona (Flagstaff): $ 389,850
- Cook County, Illinois (Chicago): $ 379,500
- DeKalb County, Georgia (Atlanta): $ 412,850
- Howard County, Maryland (Baltimore): $ 538,200
- Monroe County, Florida (Key West): $ 608,350
FHA loan limits by type of property
FHA loan limits vary depending on the type of property. They are lowest for single-unit properties, increasing for two-unit properties, increasing again for three-unit properties, and maximum for four-unit properties.
If you want to use an FHA loan to buy a duplex, the limit will be higher than if you want to use an FHA loan to buy a single family home. And you can, in fact, use an FHA loan to buy a multi-unit property, up to four units, as long as you live in one of the units as your primary residence.
FHA Loan Limits by Property Type for 2021
FHA Loan Limits For Expensive Housing Markets
The FHA loan limit for expensive housing markets in 2021 is $ 822,375, up 7.4% from the 2020 limit of $ 765,600. This limit of $ 822,375 applies to 66 counties, which are primarily located in and around New York City, San Francisco, Los Angeles, and the District of Columbia.
The FHA loan limits change each year to reflect changes in home prices. In 2021, FHA loan limits increased in 3,108 counties. In 125 counties, the boundaries have remained the same.
FHA vs. Compliant loan limits
If you want to borrow more money, you will need to qualify for a conventional loan instead of an FHA loan. You can qualify for an FHA loan with bad credit—A score as low as 500 — if you can put 10%. With a credit score of 580, you can make a down payment as low as 3.5%. But with a credit score of 620, you could qualify for a conventional loan and as little as 3% down.
With a conventional loan, you will potentially be able to borrow up to the conforming loan limits. You will still need finances that are strong enough to qualify, and the appraised value of the home will still need to support the amount you wish to borrow. But you may be able to buy a much larger home with access to a higher loan limit.