How FHA Loan Limits Work

New home buyers have much to learn about the process of applying for and being approved for FHA home loans. The advantages of the FHA mortgage include lower down payment requirements and more forgiving FICO score rules. Now, how can a new borrower know how much they can get from an FHA mortgage company?

To be precise, a mortgage that will be insured by the FHA cannot go over the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio.

The limits are set based on median house prices and are influenced by the home loan limits established by Freddie Mac and Fannie Mae.

Does an FHA home loan have blanket requirements regardless of the location where you will buy the property? No, there is no one-size-fits-all loan limit for all homes. Why not? Well, the amount of the FHA loan limit is affected by various factors, including the number of units in the home.

You can use an FHA mortgage to purchase a primary residence with as many as four living units, and the more units the property has, the higher the limit is likely to be.

The highest loan amount you will qualify for depends on a few factors. The cost of the home is not the only consideration, and other variables, such as the number of living units, are not the only ones you need to worry about.

You may be allowed to include certain financed closing costs like discount points and the Up-Front Mortgage Insurance Premium.

If you finance these expenses, you have to know how doing so will affect your monthly mortgage payments to your FHA mortgage company.

It also depends on how much you decide to pay upfront as a down payment. All FHA forward mortgages need a down payment (a minimum of 3.5%). Even then, those who choose to make a bigger down payment will borrow less (assuming financed costs are kept to a minimum) and save more over the lifetime of the mortgage.

These borrowers may or may not reach the FHA loan limit for their county by the time the transaction is over, but a bigger down payment might be a way to get a larger amount for those who can afford it.

FHA maximum loans – the largest amount possible to borrow – will vary based on several variables, including the type of transaction (forward mortgages, refinance, etc.), program type, and whether it is new construction or existing construction.

Your maximum loan amount will be less of a percentage of the adjusted value of the home or the mortgage loan limit for the area.

There is a defined “floor” for FHA mortgages. The floor is a minimum loan amount. There is also a “ceiling” applicable for purchase loans in high-cost areas set at 150% of the FHA conforming loan limit.

The loan limits enforced by an FHA mortgage company on FHA loans are set every year and announced before the start of the new year and buying season. FHA loan limits are subject to annual cost-of-living type adjustments, so it is not safe to assume that last year’s limits are identical to this year’s. Some areas will be adjusted, while others may see no alteration to the limits.