What Are FHA Loan Limits For 2023?

If you’re trying to decide which type of home loan is right for you, one thing you’ll have to consider is whether the loan will be large enough to cover the cost of the home you want to buy. If it isn’t, you’ll need to have enough cash to make up the difference. With the high home prices of today, you may be concerned about buying a house within loan limits – particularly if you’re considering a Federal Housing Administration (FHA) loan rather than a conventional loan.

Let’s take a look at FHA loan limits, where they’re applied and some alternatives to FHA loans.

Loan limits tell you the maximum amount of money you are allowed to borrow for a loan based on the area in which you live.

For 2022, the FHA loan limit is $420,680, nationwide. However, in Alaska, Hawaii and the counties with the highest housing costs, the limit is $970,800. For comparison, choosing a conventional conforming loan means you’d have a loan limit of $647,200 or $970,800 in areas with high housing costs. These higher limits for 2022 reflect ever-increasing home prices and shortages of affordable housing.

Keep in mind that these loan limits apply to the amount of the loan, not the purchase price of the home.

The FHA offers home loans designed specifically for people who would like to buy a home but may not have the credit score or income to be approved for a conventional loan. The agency offers lower down payments, lenient credit terms and favorable interest rates.

The FHA doesn’t make loans directly. Instead, it insures loans made by private lenders according to FHA guidelines. This federal backing provides reassurance to lenders who might otherwise be hesitant to make a loan offer.

Lenders are free to set their own requirements. Our friends at Rocket Mortgage® may approve FHA mortgage applications for borrowers with a credit score of 580 or higher with a 3.5% down payment, or 500 – 579 with a 10% down payment.

As always, it depends on your circumstances and options.

FHA Appraisals

Some sellers avoid offers backed by FHA approval letters. That’s because FHA appraisals are sometimes seen as more strict or severe. In a seller’s market – where sellers have more bargaining power – there’s no incentive for uninterested sellers to work with buyers with FHA loans.

Even if you’ve waived your appraisal contingency, your lender will still require an appraisal. FHA appraisals go beyond merely establishing the value of the home. The appraiser is tasked with viewing the home through a health and safety lens. That may require additional testing for regional hazards like radon or property hazards that create unsafe conditions like broken railings.

For sellers with the luxury of choosing among offers, there’s no incentive to submit to additional testing that may uncover problems that were previously unknown.

FHA Mortgage Insurance Premium (MIP)

For borrowers, they’ll have to pay MIP. MIP is the FHA’s counterpart to private mortgage insurance (PMI). But there are important differences. While there are ways to avoid PMI, MIP is unavoidable.

PMI on a conventional loan doesn’t require an upfront payment and is only required when the home buyer makes less than a 20% down payment. PMI payment ends when the homeowner reaches a 20% home equity level. With an FHA loan, however, homeowners must pay MIP for at least 11 years no matter what. MIP can possibly be canceled after 11 years if you made a down payment of 10% or more on your loan – but if you didn’t, you must pay indefinitely.

The upfront MIP is equal to 1.75% of the total value of your loan. You’ll also be responsible for an annual MIP that’s calculated and paid into your escrow account monthly. MIP costs vary, depending on how much money you borrow, the size of your down payment and the length of your mortgage term.

If you’ve reached more than 20% equity in your current FHA mortgage loan, you might consider refinancing into a conventional mortgage to avoid future MIP (or PMI) payments and lower your monthly mortgage costs.

FHA loans are just one of the many types of home loans you’ll encounter when you begin your home buying journey. Here are some others to consider.

VA Loan

A VA loan is another type of government-insured loan.

If you are a veteran, qualifying active duty service member or surviving spouse, you may qualify for a VA home loan, a valuable benefit of your service. VA home loans come with no down payment requirement, low interest rates and no VA-enforced loan limits.

Conventional Loans

Conventional loans are those made by private lenders without the incentive of government insurance. These loans fall into two groups: conforming and non-conforming.

Conforming Loan

Conventional conforming loans are generally a low-cost option. They are made without government backing and are instead bought and sold by investors.

The difference between a conforming and non-conforming loan is that conforming loans meet the requirements for purchase set forth by Fannie Mae and Freddie Mac, the two government-sponsored enterprises  that buy loans from lenders after origination.

For borrowers, this means extra layers of consumer protections. It also means they must abide by conforming loan limits, currently set at $647,200 nationwide and $970,800 in high-cost locations.

Non-Conforming Loans

If you live in a high-cost housing market, you may have no choice but to get a non-conforming loan when you want to buy a new house. One of the most common types of non-conforming loan is a jumbo mortgage loan, which is a loan for an amount that exceeds conforming loan limits. These loans are made outside of the government’s various mortgage-support programs, and therefore have no loan limits.

For most people, a single-family home is just that: a home where only one family resides.

However, Federal Housing Finance Agency (FHFA) regulations define “single-family home” as homes with up to four units. If you’re considering the purchase of a multiunit home with an FHA loan, your limits are higher.

Want to know what the FHA loan limit is for where you live? The FHFA maintains a map that you can search to find out.

An FHA loan offers many benefits for home buyers, but it does come with lower loan limits that can make it an impractical choice in some expensive areas of the country.

Ready to start your home buying journey? Apply online now and find out which option is best for you.