If you’re considering applying for an FHA loan, one of the critical factors you’ll need to understand is the loan limit. The limits on FHA loans dictate how much you can borrow when you’re using this type of loan, and there are a number of circumstances that dictate the limits in your area. Let’s take a closer look at what FHA loan limits are, how they’re determined, and why this matters for prospective homebuyers.
What are FHA loan limits?
FHA loans are backed by the government, and the limits on these loans indicate the maximum amount that the Federal Housing Administration (FHA) will insure for home purchases. These limits are set to help ensure that FHA loans remain accessible without compromising the integrity of the program.
How are FHA loan limits determined?
There are several key factors that determine the FHA loan limits in an area. They include:
- Geographical Area – The limit for FHA loans will vary significantly depending on the local real estate market. High-cost areas, like major cities, tend to have higher limits to accommodate increased housing prices whereas rural areas often have lower limits.
- Median Home Prices – FHA loan limits are based on the median home price in an area. The FHA assesses the market data to determine how much homes are selling for, and this data informs the maximum allowable loan amount.
- Statutory Limits – The federal law sets a baseline limit and a ceiling limit. This limit can change from year to year.
Understanding FHA loan limits helps you budget for your home purchase, so if you’re looking at homes above the limit, it is worthwhile to explore other financing options. FHA loans are designed to help low- to moderate-income buyers, which means they are not suitable for everyone. It’s helpful to talk with your mortgage company about your options so that you have a clear picture of what loan type is best for you as a unique buyer. If you have questions about FHA loans or want assistance with your mortgage application, feel free to reach out to our team!