On December 7, 2017, the Federal Housing Administration (FHA) announced a new set of FHA loan limits for 2018. As we predicted in a previous blog post, the limits are being increased for 2018, due to significant home-price gains that occurred over the last year or so.
These maximum loan amounts vary from one county to the next, because they are based on median home prices. In 2018, FHA limits will range from $294,515 to $679,650 depending on the location. These are the new “floor” and “ceiling” limits used by the Federal Housing Administration and its overseer HUD.
Higher FHA Loan Limits for 2018
The Housing and Economic Recovery Act of 2008 (HERA) requires the FHA to establish single-family forward loan limits at 115% of median home prices, and to set a floor and ceiling for those limits. The Federal Housing Administration calculates these mortgage amounts at the county level, and they are generally consistent across metro areas.
Here are the key changes being made for 2018:
- Ceiling: In high-cost areas of the country, FHA’s loan limit ceiling will increase to $679,650, up from $636,150 in 2017.
- Floor: FHA will also increase its baseline or floor to $294,515, up from $275,665 during the previous year.
So that’s the spectrum for 2018 FHA loan limits. They range from range from $294,515 to $679,650, based on the county where the home is located. You can find the limits for your particular county by visiting this section of the HUD website: https://entp.hud.gov/idapp/html/hicostlook.cfm
Home Equity Conversion Mortgages (HECM)
The limits shown above apply to “forward” mortgages, which are those used by home buyers to purchase a house. HUD and FHA area also increasing limits for their reverse mortgage product.
According to the press release issued by HUD:
“Additionally, the National Mortgage Limit for FHA-insured Home Equity Conversion Mortgages (HECMs), or reverse mortgages, will increase to $679,650 from $636,150. FHA’s current regulations implementing the National Housing Act’s HECM limits do not allow loan limits for reverse mortgages to vary by MSA or county; instead, the single limit applies to all mortgages regardless of where the property is located.”
A Response to Rising House Prices
FHA loan limits were increased from 2017 to 2018 in 3,011 counties across the country. The limits remained unchanged in 223 counties. So most of the country will be affected by this change, which was made in response to “robust increases in median housing prices” nationwide.
The median home price for metropolitan statistical areas, or MSAs, is based on the county within the MSA that has the highest median. For many years, HUD has used the highest median home price point for a particular year to establish the FHA loan limits for that year. This is the case for 2018 as well.
The National Housing Act requires the Federal Housing Administration to set its floor and ceiling loan limits based on the limits used for conventional mortgages (those that are owned or guaranteed by Fannie Mae and Freddie Mac). Today, FHA’s minimum national loan limit — or “floor” — is set at 65% of the national conforming mortgage amount of $453,100.
How These Loan Limit Changes Affect Borrowers
Here’s what all of this means to home buyers who want to use an FHA loan to buy a house.
Borrowers will want to review the limits for the specific county in which they plan to buy, because it will affect the maximum amount they can borrow from a lender. This, in turn, will affect the borrower’s price range for house-hunting purposes. Home buyers who need to borrow more than these limits might have to use a conventional (non-government-insured) mortgage loan instead of FHA.
Additionally, it’s important to realize that some borrowers might qualify for less than the FHA loan limit for their county, while others might qualify for the maximum mortgage amount. A person’s borrowing capacity is largely dependent on their monthly income, household debt level, and related factors.