The FHA announced changes to its 2016 loan limits in 188 counties across the country. All the changes resulted in increases in loan limits. Conforming loan limit changes that affect conventional loans were also announced.
We’ll talk about what loan limits mean, how they are calculated and whether or not they affect you.
A loan limit is just what it sounds like: a limit on how high of much of a loan you can borrow. These limits are set differently for conventional and FHA loans.
The Federal Housing Finance Agency (FHFA) sets loan limits for Fannie Mae and Freddie Mac. These limits have been mandated to stay at $417,000 until home prices reach levels at least matching those before the housing declines of the late 2000s. In determining loan limit levels for 2016, the FHFA determined that home prices across the nation were still below those seen in the third quarter of 2007.
However, the FHFA determined that home prices rose enough in 39 high-cost counties to raise limits. In these areas, the loan ceiling is set at 115% of local median home value up to $625,500. This raised limit of $625,500 also applies in Alaska and Hawaii where real estate prices can be higher than the rest of the nation.
FHA limits are calculated every year based on the national conforming loan limit of $417,000.
There are two tiers of loan limits for single-family FHA loans: low-cost areas and high-cost areas. Figuring out which loan limit applies in your area involves doing some math, but we’ll walk you through it.
The loan limit floor for low-cost areas is 65% of the national conforming loan limit of $417,000. That comes out to $271,050.
You’re in a low-cost area if 115% of the median home price is less than this floor. In other words, if the median home price in your area is less than $230,392.50, low-cost loan limits apply in your area.
If you’re not in a low-cost area, high-cost loan limits apply. In this case, you can get a loan for up to 115% of the median home price in your area, up to $625,500.
These limits are higher for multi-unit properties and in certain areas where there are special exceptions.
How Does This Affect You?
It’s nice to understand how loan limits work, but it really comes down to one question: How does this affect you?
Regulations like these can be kind of messy, so if you have any other questions, let us know in the comments.
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