New Year, New FHA Loan Limits: Our Guide To 2019’s New FHA Loan Limits By County

On December 15th, 2018, the Department of Housing and Urban Development issued a statement regarding the new FHA loan limits. These limits will take effect for loans with an FHA case number assigned on or after January 1st, 2019. The loan limits are determined depending on the location of the house to be purchased. Over 3000 counties will see an increase of 7% while the remaining 181 counties will stay at 2018 levels. No county will see a decrease in FHA loan limits in 2019. Since the FHA program was designed to help “low- and moderate-income homebuyers”, it will help them keep up with the overall rising housing costs.

1. The New FHA Loan Limits by County

FHA loan limits are determined by county depending on the general cost of the area, which is calculated “based on the median house prices in accordance with the statute. FHA Single Family mortgage limits are set by the Metropolitan Statistical Area and county and will be published periodically.” The FHA’s national low-cost mortgage limits for 2019, referred to as the “floor”, are set at “65% of the national conforming limit of $484,350 [such as mortgages following the Fannie Mae and Freddie Mac’ s guidelines] for a one-unit property”. Meanwhile, high-cost areas have a mortgage limit set at “150% of the national conforming cap of $453,100 for a one-unit property” and are referred to as the “ceiling”. High-cost areas mostly include large metropolitan areas, such as New York City, Washington D.C and surrounding towns, and the Bay Area. In most of the U.S. counties which fall between the “floor” and the “ceiling”, the limits are set to be around 115% of the median home price for the county, enabling buyers that would otherwise be limited by their lack of down-payments or lower budget to have access to a good number of available properties.

Loan limits for buildings are established depending on the number of units included as follow:

• One-unit buildings: from $314,827 in low-cost areas to $726,525 in high-cost areas
• Two-unit buildings: from $403,125 in low-cost areas to $930,300 in high-cost areas
• Three-unit buildings: from $487,350 in low-cost areas to $1,124,475 in high-cost areas
• Four-unit buildings: from $605,535 in low-cost areas to $1,397,400 in high-cost areas

Exceptions are made for specific areas, including Hawaii, Alaska, Guam and the Virgin Islands which have more expensive construction costs. FHA loan limits for those territories are established as follow:

• One-unit buildings: $1,089,787
• Two-unit buildings: $1,395,450
• Three-unit buildings: $1,686,700
• Four-unit buildings: $2,096,100

Other exceptions exist for properties located in metropolitan areas that constitute anomalies compared to the rest of the county: in these cases, the loan limits will be established using “the county with the highest median home price within the metropolitan statistical area”.

To figure out which sector the building you are considering buying is located in, you can visit the following address: https://entp.hud.gov/idapp/html/hicostlook.cfm

2. What Does It Mean for Home Buyers?

FHA loans are designed to be used by home buyers looking to purchase a house at the lower end of the price spectrum, thanks to its low down-payment and credit score requirements. It is particularly favored amongst first-time homebuyers, to whom close to 83% of FHA loans were attributed during the fiscal year 2018 per the FHA’s Mutual Mortgage Insurance Fund report. It is not intended for buyers interested in buying higher-end homes: if you are looking to purchase a house which would require a loan larger than the sums referred to above, consider a conventional mortgage instead. The fact that FHA loan limits are on the rise will allow qualified home buyers to have access to more houses available on the market despite the overall increase of houses’ prices across the United States. It was put into place by the National Housing Act, as amended by the Housing and Economic Recovery Act of 2008.

However, while the overall increase on the FHA loan limits is good news for FHA borrowers everywhere, they need to keep in mind that the lower down payment required might be offset by the necessity for them to subscribe to a mortgage insurance. It is a common requirement from the lender to protect itself from the borrower defaulting on his or her mortgage payments. This includes an upfront mortgage insurance premium of 1.75% of the value of the loan, paid in a lump sum at closing. In addition, the FHA borrower will need to pay his or her annual mortgage insurance premium on a monthly basis as part of the mortgage, which ranges in value from 0.45% to 1.05% depending on the terms of the loan. The length of time FHA borrowers must subscribe to mortgage insurance depends on the size of their down payment: borrowers having put down less than 10% will pay a monthly premium for the life of the loan while those having put down over 10% can stop after 11 years.

According to a statement by the FHA, “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”.

In conclusion, the first view into 2019 shows a slight cooling down in the overall price increase in some areas of the U.S. Coupled with this increase of FHA loan limits, qualified FHA borrowers should be able to buy more house than in 2018.