FHA Loan Limits
FHA loan limits put a cap on the size of a mortgage that can be considered to conform to FHA guidelines. Loans bigger than this limit are called "nonconforming."
Conforming loans meet certain criteria that the FHA requires in order to offer mortgage insurance. Because the FHA is insuring the loan, lenders are able to offer more favorable terms (lower down payments, etc.) and flexible lending criteria (credit scores, etc.) on conforming loans.
Non-conforming loans require higher down payments and have stricter requirements for qualifying.
2016 FHA Loan Limits
Near the end of each calendar year, the Department of Housing and Urban Development (HUD) announces the FHA mortgage limits for the coming year.
2016 FHA loan limits are $271,050 for most areas of the country. However, each year, certain counties and other metropolitan areas are designated "high-cost areas" and their loan limits are higher – up to $721,050 in Honolulu, HI or $625,000 in San Francisco, for example.
FHA County Loan Limits
Because the cost of living is not the same throughout the country, FHA loan limits vary from one county to the next, and from one metropolitan area to the next. As a result, there are FHA county loan limits.
In counties where the average cost of a home is average or low, the FHA loan limit for 2016 is $271,050. This means that you cannot get a conforming FHA loan for more than that amount.
In counties and metropolitan areas where the cost of living is higher, loan limits are higher.
You can look up the current FHA loan limits for your county or metropolitan area by visiting: https://entp.hud.gov/idapp/html/hicostlook.cfm
How are FHA mortgage limits calculated? The maximum limit is 115 percent of the median home price within a given county.
The loan limits are purposely set slightly higher than the median home price within a particular area in order to make FHA loans available for buyers seeking a modestly priced home.
The "median home price" is based on the Home Price Index (HPI) as calculated by the Federal Housing Finance Agency (FHFA). The HPI includes figures for the 50 states and the District of Columbia. The FHFA publishes monthly and quarterly HPI reports.
Why Does the FHA Have Loan Limits?
Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development's (HUD) Office of Housing in 1965. The mission of HUD is to ensure quality affordable housing. The FHA helps fulfill that mission by insuring loans and thereby making it easier for more people to qualify for a mortgage. The FHA loan program supports low- and moderate-income home buyers, particularly those with limited cash saved up for a down payment.
In other words, loan limits are in place to ensure that easier access to home financing is available for those who need it – Americans seeking quality affordable housing.
Freedom Mortgage is a top FHA lender with years of experience helping people achieve the dream of homeownership.
For information on current FHA loan limits, advice on how to get approved for an FHA loan and to find out if you can benefit from an FHA loan, call Freedom Mortgage.