According to a recent update from the Federal Housing Administration, also called FHA, there are higher loan limits available.
All areas around the country will benefit from the FHA floor maximum loan limit of $420,680. This amount is the new maximum for a single-family home.
FHA also offers financing for multi-unit homes, up to a maximum of 4 units.
How to Determine the FHA Loan Limits
As the overall real estate market continued its improvement throughout 2021, FHA deemed it necessary to provide higher limits across the board.
The new maximum limit is an 18% increase over 2021’s maximum FHA loan size.
The maximum amount of an FHA loan was $356,362 in 2021. The new maximum loan amount effective for the year 2022 is set at $420,680.
High-Cost Areas Receive Increase in Loan Limits Too
Around the country are areas in which the average price of a new home is much greater than the FHA maximum loan size. The areas are commonly referred to as “high-cost areas.”
Examples of a high-cost areas would be San Francisco or New York City.
For these areas, the rules state that the maximum loan limits offered by FHA can be 150% of the normal limit.
This means that for the year 2022, high-cost areas will be available to finance an FHA ceiling loan limit of up to $970,800. This is a significant rise over the maximum limits of $822,375 from 2021.
Real Estate is Experiencing a Boom
The guiding principle behind the increases in FHA loan limits is the overall upward trend of real estate over the last few years.
In 2016, FHA made a loan increase, but it only impacted homes in 188 specific counties located across the country.
As the overall real estate market continued to improve, 2948 counties received new, higher limits in the year 2017. Then, in 2019, over 3000 counties received higher FHA limits.
Although most counties received higher limits in 2020, there were a handful of counties that saw limits decrease. In 2021 and 2022, no counties saw decreases in their FHA loan limits.
The continual rise in home prices and steady demand for homes has greatly improved the overall economy.
Higher FHA Loan Limits Are a Great Asset to Borrowers
For those that are new to home buying, or just curious about home financing, there is usually a question of how a higher loan limit can help borrowers. The benefit comes in a few ways.
FHA loans are known for being more lenient to borrowers that have credit that is imperfect. This is a help for people that are in the process of improving their credit but are also financially able to buy a home rather than rent.
The low-down payment factor of FHA is also a great benefit to homebuyers. Instead of asking for a 5% or 20% down payment like most conventional Fannie Mae and Freddie Mac programs, FHA only requires a 3.5% down payment. This can save borrowers thousands of dollars in the upfront cost of purchasing a home.
By raising the maximum loan amount limits, more properties suddenly become available for an FHA loan. With the lenient credit rules and low-down payment requirements, the change in limits will give more people access to homeownership.
For example, suppose a person listed their home for sale at a price of $380,000 on December 10, 2021. At that time, the loan needed to buy the home would not qualify for FHA financing.
But now, just a few weeks later, the new FHA loan limits will allow a borrower to consider that same home.
This will be a type of domino effect. More homes are now suddenly available for FHA financing, which will likely lead to more purchases in most areas.
FHA Is a Leader in Mortgage Loans
Since it was first introduced, FHA has been one of the leading types of loans used for purchases. HUD statistics have shown that over $14 billion in home purchases are approved monthly by FHA underwriters.
FHA Loans are Very Attractive to First Time Buyers
As mentioned earlier, FHA is quite popular among first time home buyers, and for good reason. 3 things stand out about FHA compared to other kinds of loans
- Small down payment requirement
- Guidelines are forgiving of imperfect credit
- FHA does not restrict based on home location
The most common type of client that uses an FHA loan are middle-class citizens. These are people that have developed a stable employment record and managed their finances to the point that they are ready to move away from renting and enjoy the benefits of homeownership.
Another product provided by FHA is known as FHA 203k. This mortgage is designed to help people with repairs along with improvements to a property.
The 203k program provides extra funds, above the sale price of the home, to be used for necessary repairs, such as a leaky roof, or it can be for improvements to the property, like updated paint and carpet.
The 203k program has 2 offerings.
The first offering, which is called the regular 203k loan, will allow a wide range of repair work and improvement on a recently purchased property or a home that the borrower already owns. The limits for the 203k loan amount follow the same loan limits as mentioned above.
The second offering, referred to as the 203k streamline, has a cap on the amount of money used for repairs or improvements. It also has some limits on the type of repairs and improvements.
Both programs are structured the same way. The borrower gets one loan, with one low-interest rate, and makes one payment to the lender. This program is ideal for a buyer looking to purchase a fixer-upper and transform it into the home of their dreams.
FHA Loan Limits by Number of Units
FHA offers financing for multi-unit properties. The following chart lists the maximum loan limits based on the number of units for the property.
|Number of Units||Normal Areas Limits||High-Cost Areas Limits|
FHA has long been a strong part of the overall real estate industry. By increasing the limits for FHA loans, the doors to homeownership have been opened for a lot more borrowers. So long as the general market is healthy with a supply of homes to meet the buyer demand, the real estate market looks to continue improving for 2022.