FHA loan limits control the maximum amount you may borrow on an FHA loan. The limits vary by county within each state. Knowing the limits for your area can help you determine the purchase power you have with an FHA loan.
What are the FHA Loan Limits?
The FHA loan limits change on a yearly basis. For 2017, the highest FHA loan anyone could obtain is $636,150. This is the maximum in high cost areas. It does not mean that any FHA borrower can take a loan out for this amount.
The FHA also has a “floor”, which pertains to many areas of the United States. Today, that amount equals $275,665. In low-cost areas, this is the maximum amount the FHA will allow. Last year, the FHA floor amount equaled $271,050.
These amounts are the high and low extreme. Most areas fall somewhere in between this amount. In each county of the US, the HUD determines the loan limit by calculating 115% of the country’s median home price. This is the average loan limit in most areas. If, however, you live in a high-cost or low-cost area, the loan limits may vary.
Who Sets the FHA Loan Limits?
The United States Department of Housing and Urban Development, or HUD, the FHA, and Congress set the FHA loan limits. They consider many factors when determining the limits. Among those factors are:
- A house price index as determined by the FHA
- The average home price in your county
- The median home price in the country
- Fannie Mae and Freddie Mac maximum conforming loan amounts
How the FHA Determines the Loan Limits
The FHA has two calculations. There is a calculation for the FHA’s floor loan amount and ceiling loan amount.
The floor is 65% of the national conforming amount. In 2017, the national conforming amount is $424,100. This is where the FHA came up with a floor of $275,665.
The FHA ceiling amount is 150% of the national conforming amount. Again, 150% of $424,100 equals $636,150.
The areas falling in between the floor and ceiling are subject to he Home Price Index. This amount may change from year-to-year. You can find your area’s loan limits by visiting HUD’s FHA Loan Limit site.
Qualifying for an FHA Loan
No matter if you live in a high or low cost area, you must qualify for the FHA loan. All borrowers must meet the following:
- Minimum credit score of 580 (many lenders require higher)
- Have at least a 3.5% down payment or 3.5% equity in the home for a refinance
- Not have any delinquent federal debts
- Have a maximum housing ratio of 31%
- Have a maximum total debt ratio of 43%
- Have a 2-year employment history
- Have 2 years of stable income
- Purchase/refinance a property that can pass an FHA appraisal
These are the minimum FHA requirements. Lenders can add their own requirements onto these. They are called lender overlays. Knowing the above guidelines can help you find a lender willing to accept the minimum required.
For example, if you have a credit score of 580, some lenders may turn you down. It does not mean you are not eligible for FHA financing. It does mean that those lenders are not willing to take the risk. Shopping around may help you find a lender that is willing, though.
The FHA loan provides flexible and affordable financing for many people. It is meant to be a financing program for the low-to-moderate income families. It does not provide funding for luxurious homes, but the FHA loan limits are high enough to provide ample room to find a decent home.