Are you unable to qualify for a conventional mortgage because of low credit or because you can’t afford to pay a large down payment? Do you think there’s no way you can acquire a mortgage because your credit score is low?
If you think that you won’t be able to get into your dream home unless you improve your credit and manage to gather a large amount to pay in down payment, you are wrong! Conventional mortgages require a good credit score — generally 620 or more — and a large down payment (5 percent to 20 percent). You may not have a stellar credit score alimnd funds to pay large down payment, but that doesn’t mean you cannot buy a new home. There is a mortgage option through which you can acquire a loan with a low credit score and without a paying a large down payment. This mortgage option is called the FHA home loan.
In 1934, the U.S. Federal Housing Administration was created to promote ownership of homes in the state. FHA home loans are insured by the Federal Housing Administration. Some people mistake the FHA for being a mortgage lender, but that’s not true as the FHA only insures the loan. As FHA loans are insured, their requirements are much more lenient than those of conventional loans.
The FHA stipulates that as long as lenders follow their requirements for loans, it will insure the FHA loans against loss. FHA loans are much easier to qualify for than conventional mortgage and provide several favors to the buyer. For example, the down payment required on an FHA loan is only 3.5 percent. The down payment on an FHA loan can even be given as a gift by a family member. The minimum credit score required to qualify for an FHA home loan is 500. There are several other benefits too, but we are not going to highlight them here. In this post, we’ll focus on the FHA loan limits and show you how much you can borrow through an FHA home loan.
The FHA loan limits for 2018 have been revised. Two years back in 2016, limits on the FHA loan were increased for only 188 counties. A year later, in 2017, there were 2,948 counties in which the FHA loan limits were increased. And now in 2018, FHA loan limits have been increased in 3,011 counties. In high-cost locations, the ceiling loan limit has been increased to $679,650 in 2018. In 2017, this limit was 636,150. The floor limit has also been increased to $294,515 from $275,665 in 2018. However, for 223 counties, the limits on the FHA loan have stayed unchanged.
The floor or minimum national FHA loan limit is set at 65 percent on the national limit on conforming loan: $453,100. This floor limit applies to the areas where 115 percent of the median price of home is less than the minimum limit. Any location where the limit on the loan exceeds the minimum limit is regarded as high-cost location/area, and Housing and Economic Recovery Act (HERA) requires Federal Housing Administration to set the maximum ceiling loan limit for high-cost locations at 150 percent of the national conforming loan limit.
Last year, the economy was hot. Five all time new highs were hit by the stock market. The prices of homes have been continuously increasing all over the state and there seems to be no sign of a correction or slow down. Home values have increased nationally. The limits on the conforming loans have been increased twice by the Federal Housing Finance Agency (FHFA) in the last two years. The latest increase on the limits of conventional loans took effect in January 2018. Federal Housing Administration followed the lead of the FHFA on increasing limits on FHA home loans.
Both; the FHA and the FHFA increase limits on the loan because of rising home values all across the state. There isn’t a single area in United States where the prices of homes haven’t increased. The demand in buyers is much more than the current inventory of houses and that is the reason why home prices are continuously increasing. Due to increasing values of homes in the United States, the limits on conventional loan were increased by the FHFA to $453,100 in 2017. When limits on conforming loan increase, the limits on government loans are also increased. This is why the FHA has increased the limits on FHA Home loans. It wasn’t surprising to see FHA loan limits increased to $294,515 effective from 1st January, 2018.
Reverse mortgage borrowers can benefit from new limits on the FHA loan. The mortgage limit for reverse mortgages insured by the FHA has been increased to $679,650 from $636,150. The HECM limits of the National Housing Act don’t permit reverse mortgages’ loan limits to vary by county or MSA; instead, one single limit is applied to all loans regardless of the location of the property.
How limits on the FHA loans are determined? Most home buyers who are shopping for a mortgage often ask this question. The county in which the house is located determines the limits on the FHA loan, expect for those real estate properties that are in metropolitan areas. According to United States Department of Housing and Urban Development (HUD), the limits on the FHA loans in metro areas are set by using the county that has the highest listed median price of home within the metropolitan area. That’s the FHA loan limits’ geographical aspect.
The maximum borrowing amount for the FHA loan is based on a certain percentage of limits on conforming loan, which the FHFA sets on the basis of home prices. For example, the minimum floor loan limit for areas that are considered low cost is set at 65 percent of the national conforming loan limit.
Home buyers shopping for a mortgage should know that the FHA loan limits are different in different counties of the state. Every year they are reviewed and updated. To find the complete FHA loan limits for your specific area, you must check for loan limits in your county.
In all high-cost locations/areas across America, the FHA’s ceiling loan limit has been increased to $679,650 from $635,150 of last year. The FHA has also increased its floor loan limit to $294,515 from $275,665. Additionally, the mortgage limit for FHA-insured reverse mortgages has increased to $679,650 from the last year’s $636,150. These changes have resulted from the rising home prices in the county. FHA realizes that the prices of homes in the state are continuously rising; therefore it keeps reviewing the limits on the FHA loan and updates them to ensure that the home buyers can acquire a loan to buy a new higher priced home.
In all counties of United States, the limits on the FHA loan haven’t decreased in the last two years; they have either increased or stayed the same. You can find out about FHA loan limits of your county to see the maximum amount you can borrow from a mortgage lender through an FHA home loan in your county.
Here are the details of the new limits on the FHA loan for high-cost locations, low-cost locations/areas and areas like Hawaii and Alaska which get special limits because of higher construction costs.
The limits on the FHA loan for high-cost locations/areas (higher home prices) are now set at 150 percent of the national conforming mortgage limit of $453,100. Due to this reason, for a one-unit home, the FHA loan limit in high-cost locations is $679,650. For a two-unit home, the FHA loan limit in high-cost areas is $870,225. For a three-unit home, the FHA loan limit in high-cost locations is $1,051,875. For a four unit-home, the FHA loan limit in high-cost locations is $1,307,175.
Before applying for an FHA home loan, you should determine if your area is considered a high-cost or not and then check the limits of the FHA loan for high-cost areas to see how much you can borrow through an FHA home loan. Remember that the amount you can borrow through an FHA home loan is less than what can be acquired through conventional mortgages.
The low-cost mortgage FHA loan limits are now set at 65 percent of the national conforming mortgage limit of 453,100. This means that for a one-unit home, the FHA loan limit in low-cost locations is $294,515. For a two-unit home, the FHA loan limit in low-cost locations is $377,075. For a three-unit home, the FHA loan limit in low-cost locations is $455,800. For a four-unit home, the FHA loan limit in low-cost areas is $566,425.
The places where the costs of construction are higher are considered special exceptions. These areas include the Virgin Islands, Guam, Hawaii and Alaska. In 2018, there is higher FHA loan limits for these four areas. For a one-unit home in these areas, the FHA loan limit is $1,019,475. For a two-unit home in any of these locations, the FHA loan limit is $1,305,325. For a three-unit home, the FHA loan limit is $1,577,800. For a four-unit home, the FHA loan limit in these areas is $1,960,750.
The Department of Housing and Urban Development reports that the maximum lending amount for the FHA home loan for metropolitan areas that are high in cost rose to $679,650 for 2018. In areas where the housing cost is lower, the limit on the FHA home loan is $294,515. There’s obviously a huge gap in between these limits. These are the ‘ceiling’ and ‘floor’ limits on the FHA loans for 2018. In every other area, the limits on the FHA loan are normally set at 115 percent of the county’s median price of home. The maximum lending amounts of the FHA loan are designed to be higher than a particular area’s median price of home. Therefore, buyers who are seeking a normal priced home with a low credit score and little to pay in down payment will find FHA loan a great mortgage program.
In most markets of United States, the new limits of 2018 will provide buyers a lot of homes to choose from. But, if you are shopping for higher price homes, the new limits won’t accommodate you and nor is the FHA loan intended to. The FHA loan program is created for home buyers who have low or moderate income with limited cash to afford a large down payment.
As you can see, the FHA loan is a great option for you if you are not able to qualify for conventional mortgages because of poor credit score or because you can’t afford to pay a large down payment. Although it is true that you cannot borrow as much through an FHA home loan as you can from conventional mortgages, but if you’re seeking a normal priced home, then FHA loans are great for you. Since the requirements of FHA loans are much less stringent than those of conventional loans, you’ll find it easier to qualify for an FHA loan through an FHA-approved mortgage lender. However, before seeking an FHA home loan, you should check the FHA loan limits to determine the maximum amount that you can borrow. Once you have determined the maximum amount that you can borrow through an FHA home loan in your area, you can move forward with the loan process.
If you have been denied a home loan or have any questions about real estate or mortgage please contact the author, Matt Herbolich, MBA, JD, LLM by phone or text at 786.390.9499 or by email at email@example.com. Mr Herbolich works when you work, so feel free to contact him any time.