FHA loan limits in 2021: What borrowers need to know

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FHA borrowers have a bigger budget when it comes to buying a home in 2021. The Department of Housing and Urban Development (HUD) increased FHA loan limits for most U.S. counties this year. Here’s what to know if you’re looking for a mortgage with a low down payment.

What is an FHA loan limit?

These limits are the maximum amounts that the FHA (Federal Housing Administration) will insure for different categories of homes mortgage loans–for example, single-family homes and duplexes–in different counties in each state. Loan limits, which vary with local housing values, are calculated and updated annually, and are influenced by the conventional loan limits set by Fannie Mae and Freddie Mac.

An FHA mortgage loan is one issued by an FHA-approved lender and insured by the FHA. Designed for low- to moderate-income borrowers, FHA loans enable borrowers to qualify with lower minimum down payments and lower credit scores than are required for many conventional loans (those not guaranteed or insured by a government agency).

What are the current FHA loan limits?

For single-family home loans this year, these limits range from a floor of $356,362 an increase of more than $20,000 over 2020, to a ceiling of $822,375, an increase of nearly $60,000.

Here are the 2021 FHA loan limits for low-cost areas:

  • Single units: $356,362
  • Duplexes: $456,275
  • Triplexes: $551,500
  • Four-family: $685,400

More expensive areas have higher loan limits. For example, a house in San Francisco has a higher valuation than the same basic house in Houston.

To find the limit for any county or state, Bankrate has compiled the limits for every county in the nation here.

National conforming loan limits for Fannie Mae and Freddie Mac jumped in 2021 to $548,250, making FHA’s floor limits about 65 percent of their conforming-loan counterparts. Conforming limits are also higher in high-cost counties. Mortgages above these limits are known as non-conforming or jumbo loans.

Factors affecting FHA limits in 2021

The hike in limits is due to swelling home prices. In the third quarter of 2020, existing single-family home prices rose 13 percent to $309,300 from a year earlier, according to data from the National Association of Realtors (NAR).

The National Housing Act, as amended by the Housing and Economic Recovery Act of 2008 (HERA), mandates that the FHA set single-family forward loan limits at 115 percent of median home prices.

HERA rules state that the FHA must set floor and ceiling loan limits based on the loan limit set by conventional mortgages backed by Fannie Mae and Freddie Mac. In 2021, the national conforming loan limits for Fannie Mae and Freddie Mac will tick up to $548,250, making FHA’s floor limits 65 percent of their conforming-loan counterparts.

HERA also requires the FHA to set its ceiling loan limit for expensive metro areas at 150 percent of the national conforming limit. The new FHFA conforming loan ceiling will rise in 2021 to $822,375, the same as FHA maximum limits.

FHA loans can be helpful for homebuyers with smaller down payments, less-than-excellent FICO scores and a tighter home-buying budget. To be eligible for an FHA loan, borrowers must have a FICO score of 500 to 579 with 10 percent down or a FICO score of 580 or higher with 3.5 percent down, along with verifiable employment history or income. Additionally, FHA loans can only be used for primary residences.

Country’s wealthiest zip codes get higher FHA limits

The majority of housing markets with high ceilings were concentrated in the San Francisco-Oakland-Berkeley; Washington-Arlington-Alexandria; and New York-Newark-Jersey City metro areas.

Within this list are the five most expensive housing markets, according to NAR Q3 data. These include the San Jose, Calif. metro area (median existing single-family price was $1.4 million); the San Francisco metro area ($1.125 million); the Anaheim, Calif. metro area ($910,000); the Honolulu metro area ($866,200); and the San Diego metro area, ($729,000).

FHA raises reverse mortgage limits

FHA-insured Home Equity Conversion Mortgages (HECMs), also known as reverse mortgages, got a jump in limits, too.

The FHA raised the limits on HECMs to $822,375 for all areas, an increase of $56,775 from 2020’s $765,600 limit. This change is effective for all case numbers assigned on or after January 1, 2021 through December 31, 2021.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Senior mortgage editor