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FHA Loan Limits: Low-Cost Areas, High-Cost Areas

FHA loan limits can be puzzling to those unfamiliar with how the program works. FHA loans are calculated based upon the appraised value of the property or the sale price, whichever is lower. There are other factors that will help determine the final amount of the home loan including whether approved closing costs have been rolled into the loan, approved energy efficient upgrades, etc.

But housing markets vary across the nation. What is an affordable, modest price for a house in one area won’t be enough to purchase property in a high-cost area. So how does the FHA determine what the proper loan amount should be with this factor in mind?

HUD 4000.1 has the answers, listing FHA loan limits, and their requirements and loan guaranty limits for low-cost areas and high-cost areas. For new purchase loans, FHA rules begin with the following:

“A Mortgage that is to be insured by FHA cannot exceed the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio. The maximum LTV ratios vary depending upon the type of Borrower, type of transaction (purchase or refinance), program type, and stage of construction.”

“Under most programs, the maximum Mortgage is the lesser of the Nationwide Mortgage Limit for the area, or a percentage of the Adjusted Value. For purchase transactions, the Adjusted Value is the lesser of:

– purchase price less any inducements to purchase; or
– the Property Value.”

HUD 4000.1 adds that mortgage loan guaranty limits are calculated “based on the median house prices in accordance with the statute. FHAs Single Family mortgage limits are set by Metropolitan Statistical Area and county and will be published periodically.” FHA Single Family mortgage limits are set at or between “the low cost area and high cost area limits based on the median house prices for the area”.

What are these limits?

That depends on the number of units in the property to be purchased, among other factors. For low-cost areas:

“The FHA national low cost area mortgage limits, which are set at 65 percent of the national conforming limit of $424,100 for a one-unit Property, are, by property unit number, as follows:

– One-unit: $275,665
– Two-unit: $352,950
– Three-unit: $426,625
– Four-unit: $530,150”

For high-cost areas, HUD 4000.1 lists the following:

“The FHA national high cost area mortgage limits, which are set at 150 percent of the national conforming limit of $424,100 for a one-unit Property, are,

– One-unit: 636,150
– Two-unit: 814,500
– Three-unit 984,525
– Four-unit: 1,223,47”

There are special exceptions for certain areas of the United State and its’ territories that have exceptions to the above because of elevated construction costs. If you are looking for property in Alaska, Hawaii, Guam, or the Virgin Islands, discuss your loan application with a lender to see how the higher FHA loan limits for these areas could affect your mortgage loan application.

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