October 28, 2020

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How FHA Home Loan Limits Are Set

How FHA Home Loan Limits Are Set

How does your lender know how much home loan to approve you for when you want to buy a home? Part of that process is learning the official FHA home loan limit in the housing market where you want to buy or build your home.

The Federal Housing Administration sets FHA loan limits each year. There is a maximum FHA loan amount that is established in accordance with the National Housing Act.

Five Things You Need To Know About FHA Loan Limits

Five things you’ll need to remember about FHA purchase loan limits for suburban homes, condo units, having a house built for you on your own lot, etc. are:

  • FHA mortgage loan limits vary by county;
  • Loan limits may be exceeded if you are applying for an FHA Jumbo loan;
  • FHA home loan limits are affected by the size of the property you purchase (based on living units);
  • FHA loan limits are set once per year but may be revised.
  • FHA loan limits are set based on “median house prices” and are subject to adjustments according to the Metropolitan Statistical Area (MSA) and county (as defined below). FHA and HUD adjust the limits at the end of the closing year and before the new year. 

FHA loan rules require the establishment of an average, but also a limit for high-cost real estate markets and low-cost markets.

FHA national low-cost area mortgage limits are set at:

65 percent of the national conforming limit of $510,400 for a one-unit property.

FHA loan limits in 2020 (listed here as an example and a reference only–limits may vary depending on the year) include:

  • One-unit home in 2020: $331,760
  • Two-unit home in 2020: $424,800
  • Three-units in 2020: $513,450
  • Four-units in 2020: $638,100

High-cost area FHA loan limits in 2020 (listed here as an example and a reference only–limits may vary depending on the year) include:

Limits set at 150 percent of the national conforming limit of $510,400 for a one-unit property.

  • One-unit home in 2020: $765,600
  • Two-units in 2020: $980,325
  • Three-units in 2020: $1,184,925
  • Four-units in 2020: $1,472,550

These limits are subject to change year to year.

Here is how FHA determines the limits officially:

“Loan limits are determined by the county in which a property is located, except for properties located in Metropolitan Statistical Areas (MSAs) as defined by the Office of Management and Budget”. FHA sets the limits in these areas “using the county with the highest median price within the metropolitan statistical area”. 

When determining high-cost areas, the FHA and HUD use “indexing of county-level prices” starting in 2008 (the same year the FHA established the “current statutory authorities” for FHA limits.

Even when the FHA home loan limits are revised, many areas stay the same and do not increase. In other areas, the amounts will rise, but for a smaller number of counties the FHA loan limits may actually decrease. FHA and HUD publish a list of these counties separately.

Ask a loan officer if you are not sure how FHA home loan limit rules affect your transaction. In some cases you may find that the rules don’t add anything to your transaction, but in cases where you need a bigger loan you may need to know whether your housing market has a high enough limit or if you need to explore your options with an FHA Jumbo Loan.

Joe Wallace - Staff Writer

By Joe Wallace

July 7, 2020

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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