What does a new borrower need to know about FHA loan limits?
For a start, unless you are applying for a VA mortgage loan with 100% of your VA home loan entitlement, you are likely subject to loan limits of some kind whether staying below those limits for a conforming loan or exceeding those limits for a Jumbo mortgage.
If you want to know some important things about FHA loan limits, keep reading but one thing that is good to know up front?
Conforming loans or loans that are at or below the loan limit for FHA, USDA, conventional mortgages and VA loans for those without 100% of their home loan entitlement will typically feature more competitive interest rates than jumbo loans which may have higher rates due to the elevated risk of the mortgage in general.
FHA Home Loan Limits: Updated Annually
FHA loans are calculated based upon the appraised value of the property or the sale price, whichever is lower. That home loan amount is compared to the conforming loan limit and the lender will make a determination from there.
So if your lender has a list of home loan limits, do you need to be concerned about exceeding them?
That depends greatly on where the property to be purchased is located. Is it in a typical-cost area? A high-cost area? How many units does the property have? These variables all affect the loan limit for your FHA mortgage.
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, energy efficient upgrades, and other issues.
Housing markets vary. One zip code may feature an affordable, modest price for a house that simply isn’t right for a smaller or larger housing market.
FHA rules in HUD 4000.1 state the requirements and loan guaranty limits for low-cost areas and high-cost areas. For new purchase loans, FHA rules instruct the lender as follows:
“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 reminds us that mortgage loan limits are calculated based on the “median house prices in accordance with the statute”.
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”.