FHA Loan Limits
There are FHA loan limits enforced for borrowers around the country. The Federal Housing Administration oversees the FHA loan program, which provides homeowners with the necessary funds to finance the purchases of houses. FHA limits vary across the country to reflect the regional cost of living estimates and other factors affected by area. Furthermore, the limits may vary within each state, as different counties may have higher home costs.
The FHA loan amount for which a borrower qualifies depends on a number of factors beyond the area in which he or she lives. For example, lenders consider the borrower’s income, debt and credit score to determine his or her loan amount. It isn’t just about how much a person can borrow; it is how much he or she can afford, in monthly installments, without going into foreclosure. To learn more about these limits and to find the maximum amounts in your area, continue reading the following sections.
Maximum FHA Loan Amounts
The FHA maximum loan amount varies depending on the area in which a borrower lives. The Federal Housing Authority sets maximum limits on FHA loan amounts to ensure that homebuyers do not borrow too much. As an incentive for lower-income Americans to purchase homes, the FHA has lower down payment options and credit requirements than traditional mortgages. However, the limits for FHA loans tend to be lower than conventional mortgages, especially in lower-cost areas.
The FHA loan maximum is set by the FHA, which is an extension of the U.S. Department of Housing and Urban Development (HUD). It is based upon the loan limits for conventional mortgages. These loan amounts are set by two of the top conventional mortgage enterprises, known as Fannie Mae (The Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Likewise, the limits depend on the type of unit up for sale. Loan limits differ between one-, two-, three- and four-family homes.
Changes to Maximum Loan Amounts
The maximum FHA loan amount is not a fixed number. In fact, the U.S. government revises these amounts annually to reflect changes in cost of living, home prices and other factors. FHA maximums are based on conventional loan limits. As such, when the limits for conventional mortgages change, so do the FHA maximums. The amount by which they change is determined by the government.
The FHA maximum loan amount is also referred to as the “ceiling,” as it is the highest amount of money a homebuyer can borrower from an FHA-backed lender. When changes are made to the maximum amounts, they take effect on the first day of each new year.
In addition to maximum FHA lending limits, there are minimum loan limits for low-cost areas, which are set by the government. This is also known as the FHA “floor,” as it is the highest amount of money a homebuyer can borrow through an FHA-insured lender in a low-cost area. The HUD determines the floor by calculating a certain percentage of the national conforming (conventional) loan limit.
The FHA loan floor limit does not apply to all areas across the country; it only applies where a certain percentage of the median home price is less than the floor limit. Areas that exceed this are considered to be “high-cost” areas, and are held to high-cost loan limits. For more in-depth information about minimum and maximum loan amounts, download our comprehensive guide.
Loan Limits By Region
FHA loan limits vary, depending on the area in which a homebuyer lives. The government cannot set a national limit, as home prices and the cost of living varies dramatically by state. Furthermore, each state may have varying loan limits, depending on the cost of living within each county. The HUD determines low- and high-cost areas by considering the average home price.
The “floor” refers to the loan limit set for low-cost areas. This is an amount set by the HUD that cannot be exceeded in areas deemed “low-cost.” Higher loan limits are set for higher-cost areas, going all the way up the “ceiling,” which is a national cap.
To find the FHA lending limits in your state or county, the HUD provides an accurate search tool for use. Simply enter your preferred search criteria, such as state, county or metropolitan area. This is an important tool to use if you are an aspiring homeowner, as it helps you get a better understanding of the types of houses you can purchase with an FHA loan.
The FHA loan amount for which a borrower qualifies also depends on his or her income. One of the most important factors in determining if a borrower meets FHA eligibility requirements is the debt-to-income ratio. Otherwise known as DTI, lenders use this ratio to calculate the total amount of debt a borrower has, along with his or her income.
The DTI helps ensure that homebuyers do not exceed their borrowing FHA limits. Borrowing more money than one can afford puts the buyer at risk for defaulting on payments and going through foreclosure. All too often, lenders approve borrowers for loan amounts that may be appropriate in the moment, but ends up being too expensive down the road. Figuring out the DTI is the best way for a borrower stay within his or her budget.
To estimate your own FHA limit, add up all of your monthly income. If you are married, factor in your spouse’s income, as well. Then, add up your total monthly bills. This includes rental payments, current mortgage, home insurance, auto loans, student loan payments, credit card bills, child support and other debts. Divide the total amount of your debt by the total amount of your monthly income to arrive at your estimated DTI.
For more information about FHA guidelines loan limits or maximum loan amounts by region, download our informative guide. You can also learn more about the benefits of FHA loans, differences between conventional and FHA mortgages, as well as current FHA loan rates.