Federal Housing Administration (FHA) loans are intended for low- and moderate-income homebuyers who otherwise might not qualify for a conventional mortgage, but others can use them for higher-priced homes, too.
Although FHA loans offer certain advantages — lower downpayments and credit score requirements, for example — they have strict balance limitations, or loan limits. In other words, you can only borrow so much, and the amount you can borrow depends on the location of the home you’re purchasing.
Click on your state and county to see your FHA loan limit.
Congress created the FHA in 1934. At that time, the United States was in the midst of the Great Depression, and the housing industry was in a state of distress. Home prices collapsed, and foreclosures were rampant. Two million construction workers lost their jobs.
Great Depression-era Americans who still had jobs and wanted to buy homes faced stiff challenges. Mortgage terms were tough. Banks limited loans to 50 percent of a property’s market value, and repayment terms were three to five years, with a balloon payment due at the end of the term.
With financing so tough to come by, the U.S. became a nation of renters. In 1940, 44 percent of Americans owned home, according to the U.S. Census. FHA mortgages were designed to help people achieve the American dream of homeownership.
The federal government insures FHA mortgages on single-family and multifamily properties, including manufactured homes. Today, the FHA is the world’s largest mortgage insurer.
Because Congress created the FHA mortgage program to help people who wouldn’t qualify for conventional loans, the FHA limits how much money you can borrow. These loan limits reset annually and vary by county.
FHA Loan Limits Can Change Once a Year
Every year, the FHA announces its loan limits, or the maximum principal balance for FHA-insured loans available that year. These loan limits vary, depending on where you want to buy. Generally, in areas of the United States where real estate values are the highest, such as San Francisco or New York City, the FHA limits are higher. Conversely, in areas where home prices are more modest, the loan limits are lower.
On Dec. 5, 2014, the FHA announced its loan limits for FHA-insured mortgages closing in 2015. The loan limits range from $271,050 in areas where housing costs are relatively low to a maximum of $625,500 in high-cost metropolitan areas. The limits announced for 2015 were the same as the 2014 approved loan limits.
Homebuyers should pay attention to announcements by the FHA, particularly if they’re planning to purchase at the end of any year. Had FHA announced higher limits for 2015, savvy homebuyers could have delayed their purchase of a new home and mortgage application until the following year in order to capitalize on the higher loan limits. So it’s always wise to stay informed.
The FHA loan limit is a percentage of the national limits for conforming mortgage loans. Conforming loans are those that comply with guidelines established by Fannie Mae and Freddie Mac and which are readily saleable on the secondary mortgage market.
FHA’s minimum national loan limit floor is 65 percent of the national conforming loan limit, which is $417,000 for a one-unit property for calendar year 2015. This floor applies to areas where 115 percent of the median home price is less than 65 percent of the national conforming loan limit. Any area where the loan limit exceeds the floor is considered to be a high-cost area.
greater than $300,000 and lower than $400,000.
greater than $400,000 and lower than $500,000
greater than $500,000 and lower than $600,000
greater than $600,000 and lower than $700,000
greater than $700,000
Loan Limits in High-Cost Areas
In high-cost areas, the maximum FHA loan limit ceiling is equal to 150 percent of the national conforming limit. In areas where 115 percent of the median home price exceeds 150 percent of the conforming loan limit, the FHA loan limits remain at 150 percent of the conforming loan limit.
The U.S. Department of Housing and Urban Development (HUD) provided the following table for FHA-approved lenders in late 2014. This table illustrates the FHA loan limits for properties of different sizes in both low- and high-cost areas.
|Property Size||Low Cost Area Floor||High Cost Area Ceiling|
Because the FHA loan limit calculations depend upon the median home prices in any particular area, limits differ from county to county. In other words, in counties where home prices are low, the FHA limit will be low as well; in higher-priced counties, larger FHA-insured mortgages are available to homebuyers.
FHA-insured mortgages offer many benefits, particularly for first-time homebuyers.
FHA loans can be easier to qualify for than conventional loans. Lenders might be more willing to lend to you because the FHA insures your mortgage. It makes them feel protected in the event of a default.
FHA loans are available to those with less-than-perfect credit. Even if you have had credit problems in the past, such as a bankruptcy, you might be eligible for an FHA mortgage — even when you wouldn’t qualify for a conventional loan.
FHA mortgages require down payments of just 3.5 percent — a much lower down payment than conventional loans require. Your down payment can come from a family member, employer or charitable organization as a gift. Other loan programs do not treat gifts for down payments so liberally.
FHA mortgages offer competitive interest rates.
The FHA is not a lender. It does not lend to buyers directly, nor does it establish the interest rates on FHA loans. That’s why it’s essential to shop around and compare mortgage interest rates and terms from different lenders.
But interest rates are not the only terms that matter. The loan limits are especially important as well because they determine the upper limit on how much you can borrow, which influences the maximum price of the house you buy.
Since the FHA loan limits vary from county to county, they might even affect your decision on where to shop for a home. Consider North Carolina, for example. The 2015 FHA loan limit in the Raleigh area in Wake County is $280,600 for a single-family home.
Less than an hour away in Durham County, the FHA limit for a single-family home in 2015 is $334,650. With a higher loan limit, you might be able to afford a higher-priced home. For that reason, homebuyers planning to obtain an FHA mortgage need to consider the location of their new home.
FHA loan limits often fluctuate from year to year based upon the health of the nation’s housing market. Although the loan limits remain unchanged in 2015, that wasn’t the case the previous year.
On Dec. 6, 2013, the Department of Housing and Urban Development announced the loan limits for FHA loans on single-family homes would change on Jan. 1, 2014. The housing market was in a state of recovery at that time, so HUD determined that homeowners did not need the FHA-insured loan program as badly as they did during the throes of the Great Recession a few years earlier. As a result, the FHA reduced its loan limits.
The loan limit for areas where housing costs were relatively low remained unchanged, at $271,050, from 2013 to 2014. But loan limits for the highest-cost areas, such as San Francisco and New York, were reduced significantly that year, from $729,750 to $625,500. This caused some controversy. After all, higher limits had been in effect for six years, established by the Economic Stimulus Act of 2008 to ensure that mortgages were still widely available during the Great Recession, when private lending options were limited. Congress had extended the increased loan limits several times through the years, which allowed the FHA to continue to insure loans and ensure the availability of home mortgages for many Americans.
HUD’s decision to drop loan limits in high-cost areas for 2014 — in recognition of the fact that the housing market was recovering, unemployment had dropped and job growth was on the upswing — affected approximately 650 counties across the nation. That in turn influenced many homebuyers who planned to rely on the FHA mortgage program to finance their home. The change made homes less affordable for many buyers.
Homebuyers planning to purchase homes in high-cost areas may find that their options are limited under the FHA loan program. The FHA’s loan limits may be prohibitively low, thus putting higher-cost homes out of the reach of many buyers.
There’s good news for some of these buyers, however. Federal legislation — specifically, Section 214 of the National Housing Act — provides special exceptions for certain areas of the nation.
FHA Loan Limit Exceptions
Alaska, Guam, Hawaii, and the Virgin Islands have their own loan limits. For a single-unit home, this limit may be as much as $721,050, depending on the area, and 150 percent of those limits for some circumstances. Click on each state to learn the local limits.
|Lake & Peninsula Borough||$271,050||$347,000||$419,425||$521,250|
|Petersburg Census Area||$332,350||$425,450||$514,300||$639,150|
|Prince Of Wales||$271,050||$347,000||$419,425||$521,250|
|Wrangell City & Borough||$332,350||$425,450||$514,300||$639,150|
|Kalawao County (Kahului, Wailuku, Lahaina)||$657,800||$842,100||$1,017,900||$1,265,000|
|Maui County (Kahului, Wailuku, Lahaina)||$657,800||$842,100||$1,017,900||$1,265,000|
FHA Jumbo Loans
Some homebuyers might be eligible for FHA jumbo loans, which have higher loan limits but come with added qualification requirements. An FHA loan with a principal balance in excess of $271,050 is considered to be a jumbo loan in many parts of the country. As with standard FHA loans, the loan limit ceilings for FHA jumbo loans can change annually and vary by your home’s location.
Individual lenders set underwriting guidelines for FHA jumbo mortgages, which vary. Standards are usually tougher for FHA jumbo loans than they are for standard FHA loans to reduce the risk inherent in these larger mortgages. For example, applicants may need a higher credit score to qualify for an FHA jumbo loan.
Similarly, the maximum debt-to-income ratio might be lower for those seeking higher-balance FHA mortgages. Reserve requirements — the amount of assets you need to have on hand at the time you close the mortgage — may be increased. Some lenders might even require two appraisals depending on the property’s location, the local housing market’s health and how much you plan to borrow.