There isn’t much the coronavirus hasn’t impacted in the real estate market – from loan rates to inventory. In response to the escalating home prices seen in 2020, the Federal Housing Administration is now offering higher loan limits on FHA loan products in the new year.
FHA loans are a type of mortgage loan backed by the Federal Housing Administration. These types of loans are particularly popular with first-time home buyers, as FHA loans allow down payments as low as 3.5%, and the qualification criteria are less strict when compared to other types of mortgage loans.
FHA loans are provided by traditional lenders, not the Federal Housing Administration. Rather, since the FHA "guarantees" these loans, banks can lower their qualification criteria to potential borrowers who would otherwise be deemed as "high risk" for more traditional loan products.
If you're not sure if an FHA loan is right for you and you'd like to consider other home loan options, head to multi-lender marketplace Credible. Head to Credible now to compare rates and lenders within just minutes.
To learn more about FHA loans — and other mortgage loan options — read on.
What are the FHA loan limits for 2021?
The new FHA loan limits are very good for buyers — particularly first-time home buyers in expensive metro areas or locales with tight inventory.
"This increase allows them to look at a wider range of properties without having to qualify for a conforming loan," states Chris Wolf, vice president of mortgage lending for Mutual of Omaha Mortgage. "Conforming loans are more restrictive with debt-to-income ratios and could potentially have a higher rate or mortgage insurance payment depending on credit."
FHA loan limits are designated into two categories: "low cost" and "high cost" areas. Whether an area is "high cost" or "low cost" depends largely on population density and cost of living. When a large number of homes in the area far exceed the median home value, the loan limit for that locale goes up. For the low-cost areas, limits are set at 65% of the baseline conforming limit. High-cost areas can go up to 150% of the baseline.
"The conforming loan limit saw an increase of $38,000," explains Wolf. "This is especially good for people at or near that amount, as once you go over a loan amount of $548,250, it becomes a jumbo loan with much more restrictive and onerous guidelines."
While Credible doesn't currently offer FHA loans, it's still smart to see what other lenders are offering — and whether that makes more sense for your situation. Credible makes it easy to find out what rates you qualify for. Just enter some simple information here.
Low-cost area limits
- Single Family - $356,362 (up from $331,760 in 2020)
- Duplex - $456,275 (up from $424,800 in 2020)
- Triplex - $551,500 (up from $513,450 in 2020)
- Four-Unit (Quadplex) - $685,400 (up from $638,100 in 2020)
High-cost area limits
- Single Family - $822,375 (up from $765,600 in 2020)
- Duplex - $1,053,000 (up from $980,325 in 2020)
- Triplex - $1,272,750 (up from $1,184,925 in 2020)
- Four-Unit (Quadplex) - $1,581,750 (up from $1,472,550 in 2020)
How to qualify for an FHA loan
In order to qualify for the FHA mortgage loan product, borrowers must have:
- Minimum 500 credit score
- At least 3.5% of the home’s purchase price for a down payment. Those with credit below 580 will need at least 10%.
- A front-end maximum debt-to-income ratio of 31%, and 43% debt-to-income ratio or less for all debt.
There are also stipulations on the type of property you can buy with an FHA loan.
- Must do an FHA appraisal and home inspection
- Home loan must be used for the primary residence only
- No homes purchased in the last 90 days and then resold (no house flips!)
To see how much your monthly mortgage payment could be, use an online purchase calculator to see the difference in interest rates, down payments, and mortgage terms. You can also use Credible's free online tools to see what rates you should qualify for.
Other mortgage options
If an FHA loan does not fit your needs, there are other mortgage options available.
- Conventional loans: Conventional loans are the most common type of mortgage loan, these are loans not backed by the government, but rather, by a traditional lender.
- Interest-only loans: Just as it sounds, with interest-only mortgages borrowers pay only the loan interest for a certain amount of time and do not make any contributions toward the principal loan balance.
- Adjustable-rate loans: Adjustable-rate mortgages have rates that fluctuate with the markets and adjust periodically over time.
- Jumbo loans: This is a loan above the "conforming loan" limit ($548,250 in 2021). These often require a 700-credit score or above.
- VA loans: Another type of loan secured by the government these are only offered to veterans of the armed forces.
Analysts predict the housing and refinance boom to extend well into 2021. Now, with higher loan limits, home buying is more accessible to buyers ready to begin their real estate adventure. Before shopping, first, check mortgage rates and receive preapproval with an online mortgage broker like Credible.