What is the FHA Loan Limit?
The FHA loan limit is the maximum loan amount you can get on an FHA mortgage loan. The loan limit varies depending on the cost of housing in the county the home is located. In low-cost areas such as Texas, the loan limit in most counties is $356,362. In states where housing costs are higher, like California, the high-cost FHA loan limit of $822,375 is used.
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2021 FHA Loan Limits
Check the FHA Loan limit in your county on the HUD website
FHA Loan Limits Explained
The FHA loan limit will depend on the county where you are buying a house. The loan limit floor in all counties was raised to $356,362, so no matter where you live, you can buy a house that costs up to $340,000 without having to worry about exceeding the loan limit.
Alaska, Hawaii, Guam, and the U.S. Virgin Islands have significantly higher loan limits than the continental United States because construction costs in these areas are higher.
Loan Limits Increase Annually
Real estate property values typically increase over time; the FHA adjusts their loan limits accordingly. In most areas, the FHA loan limit increases each year. However, some areas will see the loan limit decreased.
No Loan Limits for VA and USDA Loans
VA loans recently eliminated VA loan limits. Eligible VA borrowers will be approved for a loan amount based on their income with no restrictions.
USDA loans have strict income limits; borrowers’ income cannot exceed 115% of the area median income. Because of the income limit, there is no loan limit for USDA mortgage loans.
What Affects the Maximum Loan Amount I Qualify for?
The maximum loan amount you’re approved for is not based on the loan limit; it is based on your debt-to-income ratio (DTI). Other factors, such as your credit score, which determines the interest rate you receive, will also impact the loan amount you qualify for.
Your debt-to-income ratio is the amount of your monthly income that does towards your monthly debt obligations and is the main factor mortgage lenders use to determine how much of a loan you qualify for. The maximum DTI ratio for an FHA home loan is between 43% – 50% depending on a few different factors.
If you have excellent credit, then lenders will typically allow your DTI ratio to be as high as 50%. However, if you have a credit score below 640, the highest DTI ratio you can expect is 43%.
Your credit score has a direct impact on the interest rate of a mortgage loan. The higher your score, the lower your mortgage rate will be, which increases the loan amount you qualify for.
If possible, you should work on improving your credit rating before applying for a mortgage.
The down payment amount determines the mortgage insurance premium (MIP) rate on FHA loans. If you have at least 10% down, the MIP rate will be lower, which lowers your monthly payment allowing you to be approved for a higher loan amount.
The loan term affects the amount you qualify for. The mortgage payment on a 30-year fixed-rate mortgage will be lower than a 15-year loan. The longer you can stretch out your monthly payments, the higher the loan amount you will be approved for.
Reverse Mortgage Limits
The FHA also insures conforming home equity conversion mortgages (HECM), known as reverse mortgages. The FHA does not have varying limits for reverse mortgages; they use one set limit for the entire U.S.
The maximum claim amount for FHA-insured HECMs is $765,600 (150 percent of Federal Home Loan Mortgage Corporation’s (Freddie Mac) national conforming limit of $510,400). It includes Alaska, Hawaii, Guam, and the Virgin Islands.
Conforming Loan Limits
FHA lending limits are lower than the conforming loan limits in most areas of the country. For borrowers that need a loan amount that exceeds the FHA loan limits will need to get a conventional loan. Fannie Mae and Freddie Mac set conventional loan limits.
2021 Conventional Loan Limits
Borrowers who need a loan that exceeds the conforming loan limit will need to get a jumbo loan. With jumbo loans, up to 3 million dollars can be financed. The higher loan limit means these loans have more risk; thus, they have a higher minimum credit score and debt-to-income requirements.