How Are FHA Loan Limits Set?

The Federal Housing Administration, known simply to homebuyers as the FHA — has faced tremendous oversight since it was created as part of the National Housing Act of 1934. It has been part of the U.S. Department of Housing and Urban Development (HUD) since 1965, and currently insures loans for millions of American homeowners.

In 2008, lawmakers drafted significant legislation specifically addressing FHA loans: the Economic Stimulus Act and the Housing and Economic Reform Act. The changes made to FHA loan limits were designed to allow the FHA to serve an expanding pool of possible homeowners. The crafting of the legislation was important, as prior underwriting standards of FHA loans excluded a large number of potential borrowers across the country lacking other means or access to private funding.

Every year, our elected officials in Congress work together with HUD and the FHA to establish new loan limits (or both a floor and a ceiling) for FHA loans. This typically translates to more buying power for first-time buyers. More importantly, it plays an important role in enabling minority borrowers such as Black and Latino families to become homeowners.

What Makes FHA Loans Different

The FHA doesn’t lend money. It insures loans made by private lenders — and that insurance is what lets those lenders accept smaller down payments and weaker credit than conventional guidelines allow.

The tradeoff is a cap on how much you can borrow, set county by county across all 3,000-plus U.S. counties. Understanding how that cap is calculated tells you whether FHA will work where you’re buying.

How FHA Loan Limits Are Actually Set

The formula has three steps, and it starts somewhere most people don’t expect.

Step one: the conforming limit. Each year the Federal Housing Finance Agency sets the conforming loan limit for Fannie Mae and Freddie Mac. For 2026, that baseline is $832,750.

Step two: FHA derives its floor and ceiling from that number. This is the part almost no one knows — FHA limits are a percentage of the conforming limit, not an independent calculation. (read more on 2026 FHA loan limits.)

Step three: each county gets placed between those two numbers. Under the Housing and Economic Recovery Act of 2008, FHA sets each county’s limit at 115% of the local median home price, calculated by Metropolitan Statistical Area — then applies the floor and ceiling as hard bounds.

So a county’s limit is one of three things: the floor, if 115% of median falls below it; the ceiling, if 115% of median exceeds it; or somewhere in between, if local prices land in the middle.

That’s why the conforming limit matters even to FHA borrowers. When FHFA raises the conforming limit each November, FHA limits rise mechanically with it — the floor and ceiling move by the same percentage.

What “High-Cost Area” Actually Means

A county is designated high-cost when 115% of its median home price exceeds the national floor. Those counties receive limits above $541,287, up to the $1,249,125 ceiling.

The number of high-cost counties has grown substantially as home prices rose faster than the floor. Metropolitan areas in California, New York, New Jersey, Massachusetts, Washington, Colorado, and the Washington, D.C. corridor account for most of them — along with resort counties where median prices far exceed regional norms.

Check your specific county rather than assuming. HUD publishes limits by state, county, and MSA, along with the median sales price figure behind each one. Neighboring counties in the same metro frequently carry different limits.

Multi-Unit Properties Get Higher Limits

FHA sets separate, higher limits for two-, three-, and four-unit properties, scaling up from the one-unit figure in every county.

This matters more than most buyers realize. FHA permits you to buy up to four units at 3.5% down provided you occupy one — and rental income from the other units can help you qualify. The higher multi-unit limits are what make that strategy workable in expensive markets.

Confirm multi-unit figures for your county directly at HUD, since the scaling differs by location and the one-unit limit doesn’t tell you the rest.

FHA Versus Conventional Limits: The Real Comparison

In low-cost areas, the conventional conforming limit is considerably higher than FHA’s floor:

Notice what happens at the top. In high-cost counties the two programs converge at the same ceiling — FHA’s limit disadvantage disappears entirely where prices are highest. The gap only exists in low-cost areas, where the floor sits at 65% of conforming.

And in those areas, the gap rarely binds. If a county’s median home price is low enough to qualify for the floor, $541,287 buys well above the local median.

Three Things the Limits Don’t Tell You

The limit caps the loan, not the purchase price. A larger down payment lets you buy above the limit — you’re only constrained on the amount FHA will insure. At the floor with 3.5% down, that supports a purchase near $561,000; with 20% down, considerably more.

Qualifying for the limit isn’t the same as qualifying for the loan. Your income, debt-to-income ratio, and credit still govern what you’re approved for, and that figure is frequently well below the county cap.

Limits change every year. FHA reviews them annually and publishes new figures effective January 1, following FHFA’s conforming limit announcement each November. A limit you looked up last year is probably wrong now — they’ve risen in nearly every county for more than a decade.

If your purchase exceeds your county’s FHA limit, the options are a larger down payment to bring the loan under it, conventional financing up to $832,750, or a jumbo loan above that.

Other FHA Rules for Borrowers

If you think you’re going to utilize a FHA financing for your home, it’s important to know what FHA loan limits are — but it’s not the only thing you should be focused on. FHA loans have other set rules and requirements to qualify as a borrower. What’s more, these are the FHA’s minimum requirements. That means private lenders may have additional restrictions in place for borrowers.

The one thing that might take potential homeowners by surprise is the need to pay FHA mortgage insurance. It’s similar to private mortgage insurance in that lenders require it on mortgages where borrowers don’t put at least 20 percent down.

The caveat with FHA mortgage insurance is this: it’s paid in two ways. The first payment comes as part of closing costs on the property, and then you make additional insurance payments as part of your overall monthly mortgage payment. The amount rolled into your closing costs is typically equal to 1.75% of the total loan amount, but it varies based on a number of factors including the size of the down payment, length of the loan, and the loan-to-value ratio.

There’s no getting around mortgage insurance premiums with the FHA, it’s just how the system works. Those insurance payments are moved into a fund maintained to pay lenders for mortgages where owners default on the loans.

Private mortgage insurance is typically canceled after your home gains at least 20% equity, or can be canceled automatically once equity in the property reaches at least 78% of the purchase price. Unfortunately, FHA mortgage insurance cannot be canceled if your down payment is less than 10%. That means you’re stuck with it unless you refinance the mortgage into a non-FHA loan.

The Bottom Line on FHA Limits

Standards for FHA loans (including loan limits) are arguably more generous every year. They support the first-time homebuyer, the low-to-moderate income buyer, or the person with debt or less-than-perfect credit who wants to buy a home. He or she can do so, many most assuredly, backed by an FHA loan.

Of course, it’s important to weigh the pros and cons and consider both the benefits and the drawbacks to an application for an FHA loan. For some borrowers, the choice to go with an FHA loan seems like a no-brainer. For others, they find the combination of lending limits and other regulations undesirably restrictive.

Once you’ve reached the point where you’ve been pre-approved for a mortgage (and thus, know how much you qualify to borrow and what you can honestly afford), the decision to take out an FHA loan becomes less complicated.

Overall, more constrained borrowers may end up making higher down payments or looking for a list of affordable homes that will fit within the FHA’s guidelines. Whether you’re confident an FHA loan is the right solution for you or whether you’re still weighing your options, we hope we’ve broken down the details in a way that’s helpful. Happy house hunting!

References

• U.S. Department of Housing and Urban Development, FHA Mortgage Limits.
• U.S. Congress, H.R.3221 – Housing and Economic Recovery Act of 2008.