The FHA Loan provides you with funds to purchase or refinance your home with very easy to meet guidelines. The FHA has lower credit score guidelines as well as less stringent debt ratio and income guidelines for borrowers. This is one of the main reasons many people referred to the FHA loan as the first-time homebuyer’s loan. Today, people from all walks of life use this loan to purchase and refinance their home. Because of the meaning behind the FHA program, however, to help people that are a good credit risk but do not qualify for conventional financing, there are FHA loan limits you must abide by in order to secure financing.
Determining the FHA Loan Limits
Every year, the FHA goes back to the drawing board to determine if the FHA loan limits need adjusting. In general, they create the limits based on the median house price for your area. They then take 115% of that amount to create the loan limit for your area. Each county within your state will have its own limit; sometimes they are the same and other times they are different, depending on the cost of the homes in the area.
For 2018, the FHA loan ceiling and floor amount have both been increased from the previous year. These amounts sometimes change, but not often. As of right now, the FHA ceiling equals $679,650 and the FHA floor equals $294,515. The FHA calculates the floor loan amount by taking 65% of the national conforming limit. Right now, the conforming limit equals $453,100. In areas where the median home price is less than 65% of the $453,100, the loan limit cannot be lower than $294,515.
FHA Loan Limits Vary by County
When you apply for an FHA loan, you have to meet the specific guidelines of the FHA. Luckily, the guidelines are very relaxed compared to the stricter conventional loans. Lenders will look at things like:
- Credit history
- Debt ratio
- Value and condition of the property
In addition, however, they need to see if the size loan that you need is within the limits for the county the property is located. These limits showcase what the FHA will insure for each area. If your loan amount is outside of the loan limits, you will not be eligible for FHA financing. Typically, most borrowers can fall within the loan limit guidelines because the limits are based on the average home value for the area.
There are certain counties, such as those in Mississippi that are extremely low and others, such as certain counties in California, that are very high.
FHA Loan Limits and the Number of Units
Just as is the case with any other loan type, the FHA loan limits differ based on the number of units on the property. Single-family or one-unit properties have a lower loan limit than properties with multiple units. For 2018, the limits are as follows:
- Single unit $294,515
- 2-unit property $377,075
- 3-unit property $455,800
- 4-unit property $566,425
If your county falls within this area, it means that 115% of the average home price in your area does not equal more than $294,515.
If the 115% of the average home price in your area exceeds $294,515, you reside in a mid-range area and the FHA loan limits can go as high as $679,650 for a single-unit property. All other units are as follows:
- 2-unit property up to $870,225
- 3-unit property up to $1,051,875
- 4-unit property up to $1,307,175
Last, but not least, the remaining areas that exceed the above limits are considered high-cost areas. In these areas, the 115% of the average home price exceeds the standard ceiling of $679,650. In these areas, the FHA loan limits are:
- Single-unit $679,650
- 2-unit property $870,225
- 3-unit property $1,051,875
- 4-unit property $1,307,175
The following “special Exception: limits apply to certain parts of Hawaii, Alaska, Guam, and the U.S. Virgin Islands.
- 1-unit home : $1,019,475
- 2-unit home : $1,305,325
- 3-unit home : $1,577,800
- 4-unit home : $1,960,750
There is one exception to the standard FHA loan limits and it pertains to the FHA Streamline Refinance program. This program enables FHA borrowers to refinance their existing loan into another FHA loan. There are a few stipulations that you must meet, but they are minor and there is very little paperwork involved. You must:
- Make your mortgage payments on time – Only one late payment is acceptable and it cannot be in the 3 months preceding your loan application for the streamline refinance
- You must make 6 payments on your current FHA loan before you apply
- You must benefit from the refinance, such as a lower payment
If you meet these requirements, you do not have to verify your income, assets, debt ratio or even the value of your home.
Why are there FHA Loan Limits?
You might wonder why there are FHA loan limits in the first place. What is the point of limiting what people can borrow in certain areas? The reason is due to the reason behind the FHA. The programs began to help people that did not have extensive down payments and the ability to pay off their loan in a short amount of time. This is what the mortgage lending industry was like in the 1930s before the FHA came around.
The FHA then designed their program that required very little money down and a longer time to finance the home. This made home ownership much more accessible for a larger amount of people. People that had extensive resources and the ability to put down large down payments were not eligible for the FHA program. This is still what the program stands for today, which is why the limits are in place. People that can qualify for conventional financing and put down large down payments do not need FHA financing. The FHA program is limited to those that really need the help that the FHA can provide.
FHA loan limits are not meant to be a nuisance to you. They are there to help keep the program accessible to those that really need it. That being said, they really are fair limits for the different counties throughout the United States. If you are unsure of the limits in your area, visit the HUD website, where you can enter your county name and see the loan limits for your area.