If you're considering buying a home with an FHA loan, one question you may have is whether there are any limits on how much you can borrow. The answer is yes – there are limits, but they vary depending on where you live and the type of property you're buying.
In this blog post, we'll explain what an FHA loan is, how the loan limits are determined, and what you need to know about borrowing limits.
What is an FHA loan?
An FHA loan is a mortgage that's insured by the Federal Housing Administration. This type of loan is popular among first-time homebuyers because it allows for lower down payments and has more relaxed credit score requirements than conventional loans.
FHA loans are also assumable, which means that if you sell your home, the buyer can take over your mortgage at the same interest rate and terms. This can be a selling point if you decide to move before your loan is paid off.
How are FHA loan limits determined?
FHA loan limits are determined by the Department of Housing and Urban Development (HUD). The limits vary by county and are based on the median home price in the area. In areas where home prices are higher, the FHA loan limits are higher as well.
HUD updates the loan limits annually, usually in late November or early December. The limits are based on the Home Price Index for Metropolitan Statistical Areas (MSAs) and the FHA loan limits for each county are calculated using a formula that takes into account the median home price for the area.
What are the limits on FHA loans?
The FHA loan limits for 2021 range from $356,362 to $822,375, depending on the county where the property is located. These limits apply to both single-family homes and multi-family properties with up to four units.
If you're buying a multi-family property with more than four units, you'll need to apply for a commercial loan instead of an FHA loan.
It's important to note that while there are limits on how much you can borrow with an FHA loan, there's no minimum amount. However, the amount you can borrow will depend on your income, credit score, and other factors.
Conclusion
If you're considering an FHA loan to buy a home, it's important to understand the loan limits that apply to your area. While there are limits on how much you can borrow, they're based on the median home price in your area and are updated annually.
To find out what the FHA loan limits are for your county, you can check the HUD website or speak to a mortgage lender. With the right information and guidance, you can determine whether an FHA loan is the right option for your home-buying needs.