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How Much FHA Loan Do You Need?

September 19, 2023

FHA mortgages and refinance loans

How much can you borrow with an FHA mortgage? If you are looking at FHA loan limits as a new home buyer, it’s easy to assume those numbers represent the total amount that the lender will offer once the loan application is approved.

But should you expect to borrow that maximum loan amount?

FHA Loan Limits 101

FHA loan limits vary. They are not identical for all housing markets or housing sizes. There is a maximum loan amount for high-cost counties, FHA loan limits are higher for multi-unit homes, and there is a lower FHA loan limit in areas that don’t cost as much as the most expensive housing markets. 

What To Know About FHA Loan Limits

FHA loan limits have a maximum or “ceiling” for high-cost housing markets and a maximum amount described as the “floor” for the least expensive housing markets.

FHA loan limits vary depending on whether you are in a typical housing market or not.

You should know that the FHA loan limit is set independently of items that can be financed into the loan such as the FHA Energy Efficient Mortgage option and/or the FHA Up Front Mortgage Insurance Premium.  These add-ons to the loan do not factor into the maximum loan limit issue.

That means if your house has a sale price of $100,000 and your FHA loan limit is also $100,000, rolling allowed closing costs into the loan is done without affecting the loan limit. You don’t go over the limit in this scenario by adding the closing costs.

Should You Borrow The Maximum?

Some think it’s a good idea to apply for the entire FHA loan limit even if the sale price and addition of closing costs don’t reach it. Is this permitted? The short answer is no.

Don’t expect to buy a home with a loan that is more than the total amount of the transaction and expect to take the remainder in cash like you would a cash-out refinance.

Typically you won’t take cash away at closing on an FHA loan except when you are due a refund.

Another good piece of advice? Investopedia says it’s a bad idea to assume you can simply apply for the maximum FHA loan limit amount. Instead, review your gross income and choose a percentage of that. 

The idea here is to plan for a realistic loan amount based on the limitations of your budget. Knowing how much you can borrow in the planning stages based on how much you can afford to pay on the mortgage is key.

Consider the advice of Time Magazine, which goes like this:

“The most common rule for housing payments states that you shouldn’t spend more than 28% of your gross income on your housing payment, and this should account for every element of your home loan (e.g., principal, interest, taxes, and insurance).”

Approaching your loan this way makes more sense, especially for those who have tight budgets and need to plan the purchase with that in mind.

Joe Wallace - Staff Writer

By Joe Wallace

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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