It appears that the housing market is growing strongly at the end of Trump’s first year in office, because the Federal Housing Administration (FHA) has announced that it will increase FHA loan limits in almost every part of the US in 2018. The new maximum FHA loan amounts for government insured-mortgages will take effect for all FHA home loans that are approved on or after Jan. 1, 2018.
How FHA Max Loan Amounts Are Set
The National Housing Act mandates the Dept. of Housing and Urban Development to set single-family loan limits at 115% of median house prices and the FHA county loan limits do vary by county. In 2018 high-cost areas will see a 150% raise in FHA loan limits across the board, with ceilings rising to $679,650. This ceiling increase is up from $636,150. The floor limits on FHA loans are set to rise to $294,515. This is an increase from 2017 in which the floor was set at $275,665. Did you know that there are only 223 counties that will not see 2018 FHA loan limits increased? Each year, FHA determines the mortgage limits for the next year according to Metropolitan Statistical Area and county.
In 2016, FHA boosted limits in only 188 counties. But in 2017, the number of counties with an increase went up to 2,948. In 2018, the number of counties that will see an FHA loan amount increase is 3011. This suggests that the housing market is gathering steam as home prices are continuing to climb. If the Department of Housing and Urban Development and Congress raised FHA max loan amounts signals the confidence our government has in the US economy and real estate sectors.
For 2018 in higher cost areas in California and New York, as well as others, the loan limit for FHA will be $679,650, which is an increase from $636,150 this year. For lower cost markets, the new loan limit will be $279,515. Below is a sampling of the 2018 FHA loan limits for FHA in cities across the country (FHA max loan amounts in various regions):
- Seattle: $592,250 and $667,000
- Los Angeles: $636,150 and $679,650
- Denver: $493,350 and $529,000
- Orlando: $277,150 and $294,515
- Philadelphia: $379,500 and $385,250
- Dallas: $362,250 and $386,400
- Raleigh: $300,150 and $318,550
Why an Increase in FHA Loan Amounts is a Good Thing?
If you are looking at buying a home or getting a mortgage, you may see all of this news about increasing 2017 HUD loan limits and wonder why this is important. This is a good question.
The FHA loan is one of the most popular loans issued in the country today. The loan is not actually given by FHA; it is underwritten by FHA licensed mortgage companies. The loan is insured by the Federal Housing Administration, meaning if the borrower defaults, the FHA pays back the lender part of the principal. This is an important feature because it makes lenders more likely to issue loans to people without large down payments and who have past credit problems.
When HUD raises the FHA max loan amounts, this means that it will guarantee a larger loan amount for that year. As home prices continue to climb, this is necessary if people are going to be able to buy homes with a FHA mortgage product. In some parts of the country, there is serious economic growth going on which leads to higher home prices. If FHA does not increase its loan limits, many people with lower down-payments and credit problems will not be able to use these government home mortgages. The record-low FHA mortgage rates today will not last forever. At some point the Federal Reserve will be forced to raise key interest rates because of a roaring economy.
For them, they would have to probably try to get a conventional loan, which is harder to get in terms of down payment and credit score.
FHA Loan Requirements Are Reasonable and Flexible
These government-insured loans are popular because the standards to get approved are more flexible than conventional loans. First time buyers who have credit issues often can get approved with a low interest rate. The lender is able to provide a low interest rate in a big part because of the FHA guarantee.
These loans also are available with as low as a 3.5% down payment. This makes it so much easier to qualify for a home loan than if you need to put down 20% as with some conventional loans.
If you are applying for a home loan with FHA, you only need to have a credit score of 580 to get a loan with a 3.5% down payment. However, it is easier to get approved with a higher credit score. Most importantly, you should show a positive credit history for the past one or two years. FHA insured lenders understand having a past credit issue such as bankruptcy or foreclosure, but you will need to show that you have mostly recovered financially to be approved. See today’s credit score requirements on FHA loans.
You also will need to show that you have documented income that is high enough to afford the home. Further, you should have not had a bankruptcy in the last two years. Last, you should have steady employment for the past two years. Being self-employed is fine, but you will need to show a profit and loss statement and two years of tax returns to qualify.
Regarding debt to income ratios, you generally need to show that your monthly home payment will not be more than 31% of your gross monthly income. The lender also wants to see that your total debt load each month is not more than 41% of your gross monthly income.
The bottom line on the increased FHA loan limits for 2018 is that the housing market across the country is improving considerably as home prices are continuing to rise. But interest rates are still under 4% for 30-year, fixed loans, so now is a very good time to get a loan with an experienced FHA-mortgage lender.
References: 90% of US Counties Get FHA Loan Limit Increase. (2017). Retrieved from http://www.mortgagenewsdaily.com/12082017_fha_loan_limits.asp