by Alex Roha
Given massive year-over-year gains in home prices, the Federal Housing Administration (FHA) is increasing its 2021 loan limit in most of the U.S. to $356,362, an increase of nearly $25,000 over 2020’s loan limit of $331,760.
That loan limit figure is determined as a percentage of the national conforming loan limit for Fannie Mae and Freddie Mac, which is increasing in 2021 to $548,250.
FHA’s 2020 minimum national loan limit, or “floor,” of $356,362 is 65% of the national conforming loan limit of $548,250. This floor applies to low-cost areas, which are counties where 115% of the median home price is less than the floor limit.
In approximately 65 high-cost U.S. counties where the median home price far exceeds the FHA’s loan limit floor, the FHA is increasing its 2021 loan limit to $822,375, close to a whopping $57,000 increase over 2020’s total of $765,600.
Because the FHA is required by the National Housing Act – as amended by the Housing and Economic Recovery Act of 2008 – to set single-family forward loan limits at 115% of median house prices, subject to a floor and a ceiling on the limits, HERA requires the FHA to set its maximum loan limit “ceiling” for those high-cost areas at 150% of the national conforming limit.
“FHA has seen consistent increases in loan limits during the past few years, putting it ina position to serve a segment of borrowers that may be better-served by the conventional market. FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375? This is a question for Congress and the taxpayers who stand behind FHA to answer,” said assistant secretary for housing and federal housing commissioner Dana Wade.
Under HERA, the FHA calculates forward mortgage limits by Metropolitan Statistical Area and county. Due to robust increases in median housing prices and required changes to FHA’s floor and ceiling limits, the maximum loan limits for FHA forward mortgages will rise in 3,108 counties. In 125 counties, FHA’s loan limits will remain unchanged.
There are a number of counties where the 2021 loan limit will be between the floor and the ceiling. Loan limits in those counties, which are based on the median home prices in those counties, vary from just above the floor of $356,362 to just below the ceiling of $822,375.
There are also a few areas where loan limits are calculated differently than the rest of the country due to the specific nature of those housing markets.
As in previous years, Alaska, Hawaii, Guam, and the U.S. Virgin Islands have a higher limit ceiling than the rest of the country to account for the higher costs of construction.
In those areas, the 2020 FHA loan limit is $1,233,550.
Unlike 2020’s report, the FHA said there are no counties where the loan limits will be decreasing.
Back in 2016, the FHA increased loan limits for just 188 counties; in 2017, this number jumped to 2,948 counties; then to 3,011 counties for 2018. In 2019, the FHA loan limits increased in 3,053 counties.
It should also be noted that both the FHA loan limit floor and ceiling are increasing on two-unit, three-unit, and four-unit properties.
According to the FHA, the loan limits are effective for case numbers assigned on or after Jan. 1, 2021, through Dec. 31, 2021.