As of the beginning of 2021, higher loan limits made it easier for homebuyers to get an FHA mortgage. The loan limits allowed by the FHA have a significant impact on the housing market and how home buyers approach financing a property. For example, in the first quarter of 2020, the Federal Housing Authority (FHA) loans made up 20.4% of new home sales.
2021 FHA Mortgage Limit Increased
In 2021, the FHA cited robust housing appreciations as the reason for a 7.42% average increase in the FHA loan limit.
The floor limit for single-family homes increased from $331,760 to $356,362. In high-cost areas, the ceiling limit increased from $765,600 to $822,375. The loan limit did not change in 125 counties across the country. No counties saw an FHA limit decrease in 2021.
The national FHA floor limit is set to increase by around $25,000.
Related: FHA vs. Conventional Loan
What Are FHA Loan Limits?
The Federal Housing Authority insures an FHA loan. A variety of banks and other institutions provide FHA loans. The lender can offer the loan with more confidence knowing that the FHA backs the loan.
However, the FHA has limits on how much they are willing to guarantee. These loan limits are based on the area where the borrower is buying and the type of property. For example, a single-family home in a rural area will likely have a lower limit than a city apartment.
The FHA has a “floor,” which is the lending limit for lower-cost areas, and a “ceiling,” which is the lending limit for high-cost areas.
How Does the FHA Set Loan Limits?
The FHA looks at the home values and market activity in every county to set the FHA mortgage limits. One county may have a different limit than another county in another part of the country.
Both the price to purchase a home and the market demand impact the FHA limit in the county. The FHA adjusts both the floor and ceiling limits each year as needed. The limits do not always go up — in some years, a county may see a decrease in the FHA mortgage limit.
The FHA is required by the National Housing Act (NHA), amended in 2008 by the Housing and Economic Recovery Act (HERA), to set the limit at 115% of area median house prices, subject to floor and ceiling amounts.
In areas where 115% of the median house price is below the floor limit, the floor limit applies. The floor limit must amount to 65% of the national conforming loan limit for Freddie Mac and Fannie Mae mortgages. The ceiling is 150% of that same national limit.
2021 is a Great Time to Buy a Home
2021 could be an excellent year to purchase a home because of the historically low interest rates and higher limits on FHA home loans. Buyers can lock in affordable payments on a new home and enjoy their property for years to come.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing to help clients lower their monthly mortgage payments.