Home prices are trending upward across the country. If you’re lucky enough to be independently wealthy, you might be able to buy your home with cash, but most people will have to get a mortgage.
If you’re buying a home with a mortgage, every program has an upper limit on the amount you can qualify for before it’s considered a jumbo mortgage. If you’re looking to qualify for a Federal Housing Administration (FHA) loan, the FHA recently announced new loan limits for 2018. If you’re in the market for a mortgage, your limits are most likely going up. In this post, we’ll go over how FHA loan limits are set, how to calculate or find the limit in your area and also cover the impact on FHA insured reverse mortgages.
How FHA Loan Limits Are Set
For conventional loans backed by Fannie Mae and Freddie Mac, there’s a standard loan limit of $453,100 for conforming loans (up to $679,650 in high-cost areas). Anything above that is considered a jumbo loan. The VA follows the same loan limit guidelines, but FHA loan limits are a little more complex.
FHA loan limits, which are based on home prices in your county, are generally calculated by taking 115% of your area’s median home value. The law requires that local loan limits be no lower than 65% of the current national conforming loan limit, which is $294,515 this year, up from $275,665 in 2017.
On the other end, this year’s ceiling for conforming FHA loans in the highest cost areas is $679,650, which is up from $636,150 last year. This figure represents 150 percent of the national conforming loan limit.
According to HousingWire, loan limits increased in 3,011 counties across the U.S., leaving just 223 counties with unchanging limits.
This leads to a couple of great things. Purchasers have increased buying power on the market. In addition, if you’re a homeowner who is looking to access their equity by taking cash out, you may be able to take out more cash based on what your home is worth and the new limits.
How to Find Your Limit
The Department of Housing and Urban Development (HUD) has a search engine that can help you figure out what the limit is in your area. You can search the limits based on your county or metropolitan statistical area (often defined by the nearest urban area, like Detroit or Grand Rapids). In addition to finding the FHA limit, the search engine has a couple of other neat features for home buyers.
The table that comes up in the search results will show you the median sale price for the area you searched on, which can help you compare the affordability of different areas at a glance. Of course, this is only a very broad first look. There are typically many counties around a big city with different areas that have varying price ranges for homes.
In addition to finding the limits on FHA loans, you can use the engine to find the local limits on Fannie Mae and Freddie Mac loans (and by extension, VA loans).
Reverse Mortgage Limits
In addition to handling FHA loans, the FHA also is responsible for insuring home equity conversion mortgages, more commonly referred to as reverse mortgages.
Available for homeowners age 62 and older, a reverse mortgage allows homeowners to get a nonrecourse loan that allows them to access their home equity without making a monthly mortgage payment.*
A reverse mortgage pays off whatever existing mortgage the person may have and they get to use whatever is left over. There are a variety of ways a person can access their equity including as a lump sum payment or line of credit. The loan doesn’t become due until the last borrower on the loan leaves the home.
When the loan is due, you or your heirs have several options:
- Sell the home. You only owe the FHA what you can get on the open market for the home. If you sell the home for more than the loan balance, you or your heirs keep the difference.
- If your heirs want to keep the home, they can refinance the balance or 95% of the home’s value (whichever is lower) into a traditional mortgage.
- Finally, your heirs can choose to let the home go, in which case it goes back to the lender or investor in the mortgage.
The new loan limit for reverse mortgages across the country is $679,650. Unlike FHA loans, there’s no difference between counties.
If you would like more information on reverse mortgages, you can take a look at our friends at One Reverse Mortgage. You can also get in touch with them by phone at (800) 401-8114.
If you’re looking to buy or refinance your home with an FHA mortgage, you can get started online with Rocket Mortgage® by Quicken Loans. You can also contact one of our Home Loan Experts by phone at (888) 980-6716. If you have questions or comments, you can leave them below.
*The homeowner is still responsible for taxes, insurance and property maintenance.
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