How Are FHA Loan Limits Set?
The FHA adheres to a lending limit which is the maximum loan amount for an FHA loan. Limits change annually and depend on a couple of factors including: where you live (down to the county), median home values in your area and the size property you are buying (single-family, condo, duplex, etc.).The primary factor in determining loan limits is your state of residence. Contrary to what some believe, FHA loan limits are not based on an individual's income.
How Are FHA Loan Limits Set?According to the FHA, "...single family mortgage limits are set by the county and are tied to increases in the loan limits established by the Federal Home Loan Mortgage Corporation (Freddie Mac)..."
Loan limits in Adams County, WA as of 2018 are: $294,515 for a single family home, $377,075 for a duplex, $455,800 for a three family home, and $566,425 for a four family home.
This is considered the "floor" for FHA loan limits. This is calculated as 65% of the Freddie Mac and Fannie Mae Conventional Loan Limits (sometimes called Conforming Loan Limits). These minimum rates apply for most of the country. However, many counties in more expensive parts of the country have increased FHA Loan Limits.
In Snohomish County, WA, which includes downtown Seattle, Tacoma and Bellevue, loan limits here as of 2018 are significantly higher: $667,000 for a single family home, $853,900 for a duplex, $1,032,150 for a three family home, and a whopping $1,282,700 for a four family home.
There are only a few hundred counties with FHA loan limits over the national minimum (out of over 2,000 counties total). See all FHA Loan Limits by County.
Additionally, there are four separate levels of FHA loan limits:
- Standard – If the median home price multiplied by 1.15% is less than national floor, you are in the standard tier.
- Mid-range – The mid-range tier is comprised of areas with Loan Limits between $294,515 and $679,650 (for 2018)
- High-cost – The high-cost tier is for areas where the median home price times 1.15% exceeds $679,650
- Special Exception – Specific areas in Hawaii, Alaska, Guam and the U.S. Virgin Islands fall under this category due to the higher cost of living.
How Are Conforming Loan Limits Set?Federal Home Loan Mortgage Corporation (Freddie Mac) determines Loan Limits on Conforming Loans. Freddie Mac purchases loans from private lenders in order to increase liquidity in the mortgage lending market. But, they will only purchase mortgages that conform their loan limit requirements. As a result, Freddie Mac's limits become a standard conversion across the industry.
Federal Home Loan Mortgage Corporation determines its loan limits by calculating 115% of the median home price is in a given county (as determined by the Department of Housing and Urban Development).
How Does the HUD Determine the Median Home Price?All other loan limits are ultimately based on the Department of Housing and Urban Development's calculation of median home prices. Each year, the HUD conducts a nationwide survey to determine home prices across the country.
The HUD uses their home price data for determining eligibility and benefits for a variety of homeowner and renter assistance programs. The HUD publishes the result of their yearly survey for use by other government departments and private industry.
The HUD publishes both the 50th-percentile (median) home prices and 40th-percentile home prices in each county. The 40th percentile prices are call "Fair Market Rents." This data is completely public. Click here to Look-up Fair Market Rents in your area or click here to learn more about Fair Market Rents.
Loan Limit UpdatesLoan limits fluctuate for myriad reasons including things like the appraised home value and location. In December 2017, new loan limits were announced for 2018. In both high and low cost areas, limits increased.
Areas where the cost of living is high across the U.S. saw an increase of $43,500 from 2017 ($636,150). The new ceiling for 2018 stands at $679,650. Areas where the cost of living tends to be lower across the U.S. saw an increase of $18,850 from 2017 ($275,665). The new floor for 2018 stands at $294,515.
Loan limit updates are implemented to offset the rising cost of buying a home and to make homeownership more accessible.
Each year, new loan limits go into effect on January 1.