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FHA Loan Limits 2023: Here’s How Much You Can Borrow

Buying a higher-priced home? FHA loan limits determine the maximum FHA-insured mortgage amount you can borrow. For 2023, the baseline FHA loan limit is $420,680 but it goes up to $970,800 in pricier housing markets. Read on to learn more about current FHA limits, how they’re calculated, and what to do if your mortgage needs exceed the ceiling in your area. What Are FHA Loan Limits? FHA loan limits set the maximum mortgage amount the Federal Housing Administration will insure for loans in different counties across the United States. If the mortgage is above the FHA loan limit for that location, the mortgage cannot be FHA-insured. These limits vary by county and are based on medians home prices and statutorily set baseline floors and ceilings. Higher limits apply in more expensive housing markets. For a home purchase, the FHA loan amount cannot exceed the applicable limit for where the property is located. This means borrowers in lower-cost markets may not be able to secure FHA financing above a certain threshold. Current FHA Loan Limits for 2023 The Housing and Economic Recovery Act establishes baseline FHA loan limits that are adjusted annually based on housing price trends. Here are the current limits for 2023: Minimum FHA Loan Limit – Floors are set at 65% of the national conforming limit of $702,000. So the minimum is $420,680 (lower in some markets). Maximum FHA Loan Limit – Ceilings are set at 150% of the local conforming limit. In most high-cost areas, the max is $970,800. Average Limit – The average 2023 FHA loan limit is $420,680. This is an increase of around 10% from the average $381,550 limit in 2022. These increased limits for 2023 make FHA financing an option for more buyers looking at homes above the $381,550 average loan limit last year. How FHA Loan Limits Are Calculated FHA loan limits begin with a baseline set by statute at 65% of the conforming loan limit – which is $702,000 in 2023. From there, the process involves these steps: 1. Floor – The baseline of 65% of the conforming loan limit sets a minimum floor for all FHA loans. This is $420,680 in 2023. 2. Median Home Price – The median home price for the area is used to calculate FHA limits above the floor. The limit is set at between 100-150% of area median price. 3. Ceiling – The maximum FHA loan limit ceiling is 150% of the local conforming limit. For 2023, the ceiling is $970,800 in most high-cost areas. So in expensive metro areas, the maximum FHA loan limit borrowers can qualify for is $970,800. In lower-cost counties, it drops to a floor around $420,680 up to the area’s median home price. Checking FHA Limits By County FHA loan limits vary widely by county and location. To check the limits: Look up your county on the FHA loan limit lookup tool from the U.S. Department of Housing and Urban Development. Ask lenders for a list of FHA/VA limits in your area. Most can provide the data. Check recent guidance from the FHA outlining the latest loan limits. Contact a real estate agent who can advise on the FHA limit for the county where you want to buy. The standard maximum FHA loan most borrowers qualify for is $420,680. But buyers in expensive metro areas like California, New York, Washington DC or Hawaii may qualify for FHA loans up to $970,800. What If My Loan Exceeds FHA Limits? Because FHA loan limits are tied to median home values in a region, they may be lower than you need to buy more expensive properties. If your mortgage amount exceeds your area’s FHA loan cap, you have a few options: Make a larger down payment – Putting down a larger down payment brings the loan amount below the limit. Use another government program – Options like VA loans have higher limits than FHA in some markets. Go with conventional financing – Conventional loans have no set loan limits, so can accommodate higher mortgages. Buy a lower-priced property – Shifting your home search to lower-priced listings may allow an FHA loan to work. Get a second mortgage – Pair an FHA first mortgage with a second loan for additional funds. Run the numbers to see if you can make one of these scenarios work to buy the home you want. Tips for Getting the Highest FHA Loan Amount While FHA loans offer helpful benefits, the limits may fall short if you’re buying a higher-priced or jumbo property. A few tips can help maximize how much you can borrow with an FHA loan: Improve your credit score – Higher FICOs qualify for the max Shop lenders – Some allow higher ratios to stretch limits Lower your DTI if possible – Allows more loan capacity Make a larger down payment – Decreases the amount required Adjust your home search – Stay under caps for your market Seek co-borrowers – Add income to qualify for higher limits Get a second mortgage – Fills gaps above FHA loan ceiling With proper planning, an FHA loan can still be an affordable option even if your purchase is pushing up against the limits. FHA Loan Limits FAQs Do you still have some lingering questions about FHA loan limits and how they impact your borrowing power? Here are answers to some frequently asked questions: How often do FHA loan limits change? FHA loan limits are re-evaluated annually based on changes to median home values and the conforming loan limit. Typically new limits are issued for each calendar year. Do FHA loan limits apply to refinances? Yes, FHA refinances are subject to the same loan limits based on the property’s location. Cash-out refis have lower max loan-to-value ratios. Can I get an exception to go over FHA limits? No, the FHA limits cannot be exceeded, even with a larger down payment. The only option is alternative financing like a second mortgage. Do FHA loan limits affect interest rates? Not directly.

FHA Loans: Your Complete Guide to FHA-Backed Mortgages

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What Are FHA Loans? FHA loans are mortgages insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA insures these loans, allowing lenders to offer more flexible underwriting and down payment options than conventional loans. The most popular type of FHA loan is the 203(b) program, which is for purchasing or refinancing a primary residence. You can use FHA loans to buy a single-family home, townhouse, condo or manufactured home. These government-backed loans can be especially helpful for borrowers with lower credit scores or limited funds to put down. FHA Loan Benefits Low Down Payments You can get an FHA loan with just 3.5% down. This makes these mortgages popular for first-time homebuyers and others without a lot saved for a down payment. With a conventional loan, you typically need at least 5% down, and usually 10-20%. Lenient Credit Requirements FHA loans have more flexible credit underwriting than conventional loans. Your credit score can be as low as 500 to qualify. And you can be approved with a bankruptcy or foreclosure in your recent history. Low Mortgage Insurance FHA loans require mortgage insurance no matter your down payment size. But FHA mortgage insurance rates are lower than with conventional loans. Gift Funds Allowed You can use funds gifted from family toward your FHA down payment and closing costs. This can help first-time buyers who don’t have a lot saved on their own. Assumable Financing FHA loans are assumable, meaning the mortgage can transfer to a new buyer if you sell the home. This can help the property sell faster. FHA Loan Requirements To get approved for an FHA loan, you’ll need to meet certain requirements: Down Payment As mentioned, the minimum down payment is just 3.5% of the home’s purchase price. You can do 10% down or higher if you want, but a larger down payment doesn’t get you better rates with an FHA loan. Gift funds and grants are acceptable sources for your down payment. But the seller cannot pay for any of your down payment directly. Credit Score and Underwriting FHA loans are available to borrowers with credit scores as low as 500. The bare minimum score is 580 if you want to only put 3.5% down. Above 580, you can qualify with just 3.5% down. Along with your credit score, the lender will review your entire credit profile, debt-to-income ratio, employment history and assets. You can qualify with some credit dings, but major red flags like a recent bankruptcy or foreclosure will need to be offset by other positive factors. Debt-to-Income Ratio Your total monthly debt payments, including the new mortgage, cannot exceed 43% of your gross monthly income. This threshold is more lenient than conventional loans. But lenders will still want to see you have enough income left after your debts to comfortably make the mortgage payment. Occupancy and Property Type To use an FHA loan, you have to be purchasing the home as your primary residence. Second homes and investment properties aren’t eligible. And the property must be a single-family home, townhouse, condo or mobile/manufactured home. Home Inspection The property will be assessed for any repairs needed to meet FHA minimum property requirements. Certain repairs identified will have to be completed before closing on an FHA loan. FHA Loan Costs and Rates Below are the main costs and fees to expect with an FHA mortgage: Mortgage Insurance You’ll pay an upfront mortgage insurance premium of 1.75% of the loan amount. And an annual mortgage insurance premium of 0.45% to 1.05% of the loan amount (higher for lower down payments). Loan Fees FHA loans come with an upfront loan fee of 1.75% of the loan amount and an annual fee of 0.45% to 0.55%. The fees can be rolled into the loan amount. Interest Rates FHA loan rates are competitive with conventional mortgage rates. Though they may be slightly higher, depending on your credit. The interest rate difference is usually only about 0.25 to 0.5 percentage points. Loan Limits FHA loan limits vary by metro area. In lower-cost areas, the max loan amount is $420,680. For higher-cost areas, it’s $970,800. You can look up the limits by county online. How to Get the Best FHA Loan Rates Here are some tips for scoring the lowest interest rate on an FHA mortgage: Shop lenders – Compare loan estimates from multiple lenders. Rates and fees can vary significantly. Improve your credit – The higher your score, the better your interest rate will be. Pay down balances and dispute any errors on your credit reports. Lower your DTI – The more residual income you have after debts, the better. Pay off credit cards and other loans to lower your DTI. Make a larger down payment – You can put down more than 3.5% if possible. A bigger down payment signals less risk for the lender. Shorten your loan term – Reduce the loan term from 30 to 15 or 20 years. Shorter terms come with lower interest rates. Check for first-time homebuyer programs – Many government and nonprofit programs offer below-market FHA rates for qualifying buyers. The Pros and Cons of FHA Loans FHA loans provide a pathway to homeownership for buyers who may struggle to get a conventional mortgage. But they aren’t perfect for everyone. Here are some key pros and cons: Pros Low down payments More flexible credit and underwriting Lower monthly mortgage insurance Gift funds allowed Assumable financing Cons Additional upfront and annual fees Monthly mortgage insurance required Lower loan limits in some markets More closing costs than conventional loans Restrictions on the types of property An FHA loan can be a great option if you want to buy with less cash up front and have some dings on your credit. But shop carefully to make sure the rates and costs measure up to conventional financing. FHA Loan Alternatives An FHA loan isn’t your only choice if you need flexible qualifying criteria. Some

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