2021 FHA and FHA 203k Loan Limits

FHA Loan Limits

According to a recent update from the Federal Housing Administration, also called FHA, there are higher loan amounts available.

Most areas around the country will benefit from the new maximum loan amount of $356,362. This amount is the new maximum for a single unit loan.

FHA also offers financing for multi-unit homes, up to a maximum of 4 units.

How to Determine the FHA Loan Maximum

As the overall real estate market continued its improvement throughout 2020, FHA deemed it necessary to provide higher loan amounts across the board.

The new maximum is a 7.15% increase over 2020’s maximum FHA loan size.

The maximum loan amount of an FHA loan was $331,760 in 2020. The new maximum loan amount effective for the year 2021 is $356,362.

High-Cost Areas Receive Increase in Loan Amount 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 area would be San Francisco or New York City.

For these areas, the rules state that the maximum loan amount offered by FHA can be 150% of the normal limit.

This means that for the year 2021, high-cost areas will be available to finance an FHA loan amount up to $822,375. This is a significant rise over the limit of $765,600 from 2020.

Real Estate is Experiencing a Boom

The guiding principle behind the increases in FHA 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 loan limits in the year 2017. Then, in 2019, over 3000 counties received a higher FHA loan limit.

Although most counties received higher loan limits in 2020, there were a handful of counties that saw loan limits decrease. In 2021, 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 home buyers. Instead of asking for a 5% or 20% down payment, 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, more properties suddenly become available for an FHA loan. With the lenient credit rules and low-down-payment requirements, the change in loan amounts will give more people access to homeownership.

For example, suppose a person listed their home for sale at a price of $350,000 on December 10, 2020. 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 rule 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 Mortgages

Since it was first introduced, FHA has been one of the leading types of mortgages used for purchases. HUD statistics have shown that over $14 billion in home purchases are approved monthly by FHA underwriters.

FHA is 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 for a property.

The 203k program provides extra funds, above the sale’s 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 amounts based on the number of units for the property.

Number of Units Normal Areas High-Cost Areas
One $356,362 $822,375
Two $456,275 $1,053,000
Three $551,500 $1,272,750
Four $685,400 $1,581,750

FHA has long been a strong part of the overall real estate industry. By increasing the maximum loan amounts for FHA mortgages, 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 2020.

View the full Mortgagee Letter from HUD (pdf)
View FHA Reverse Mortgage (HECM) Limits (pdf)

Search FHA Maximum County Mortgage Limits by State

Download Wisconsin FHA Loan Limits (pdf)
Download Minnesota FHA Loan Limits (pdf)
Download Illinois FHA Loan Limits (pdf)
Download Florida FHA Loan Limits (pdf)

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