December 8, 2020
On December 2, 2020, the FHA and HUD issued a press release announcing higher FHA mortgage loan limits for 2021. Those applying for FHA mortgages with FHA case numbers assigned on or after 1 January 2021 will have higher loan guaranty limits to work with than in 2020. The same thing happened last year, but higher loan limits in the new year are NOT guaranteed to happen year-to-year.
But this year, it DID happen and the FHA has explained the hows and whys. Why did limits go higher for the new year?
FHA is required by a federal law known as the National Housing Act, (which itself was amended by the Housing and Economic Recovery Act of 2008) to “…set Single Family forward loan limits at 115 percent of area median house prices, subject to a floor and a ceiling on the limits. FHA calculates forward mortgage limits by Metropolitan Statistical Area and county.”
That explains the authorization to do so, but that doesn’t address the WHY of higher FHA loan limits in 2021.
According to Assistant Secretary for Housing and Federal Housing Commissioner Dana Wade, “FHA has seen consistent increases in loan limits during the past few years” and that is due to what the FHA describes as “robust increases in median housing prices” which required changes to FHA’s floor and ceiling limits, “which are tied to the Federal Housing Finance Agency (FHFA)’s increase in the conventional mortgage loan limit for 2021”.
That means the maximum loan limits for FHA forward mortgages will rise in 3,108 counties. According to an FHA press release, “In 125 counties, FHA’s loan limits will remain unchanged”.
How do these alterations work? “By statute, the median home price for a Metropolitan Statistical Area (MSA) is based on the county within the MSA having the highest median price. It has been HUD’s long-standing practice to utilize the highest median price point for any year since the enactment of the Housing and Economic Recovery Act”.
What can borrowers expect in 2021? In high-cost areas of the country, FHA’s loan limit ceiling goes higher: $822,375 from $765,600.
A press release on the FHA official site reminds, “The National Housing Act, as amended by HERA, requires FHA to establish its floor and ceiling loan limits based on the loan limit set by FHFA for conventional mortgages owned or guaranteed by Fannie Mae and Freddie Mac.”
The national conforming loan limit for 2021 is $548,250. The FHA 2021 minimum national loan limit “floor” of $356,362 is set at 65 percent of the national conforming loan limit and applies to those areas where 115 percent of the median home price is less than the “floor” limit.
If you are shopping for a home in any area where the loan limit exceeds this ”floor”, you are shopping in what the government considers a high-cost area. Federal law requires FHA to set its maximum loan limit “ceiling” for high-cost areas at $356,362–150 percent of the national conforming loan limit.
Again, these limits apply for home loans with case numbers issued in 2021, you can’t access the higher loan limits for a loan with a case number issued in 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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