The Federal Housing Administration (FHA) has announced its new loan limits for 2021, pushing its loan floor next year to $356,362 in most areas of the country.
That’s up from $331,760 in 2020, an increase of almost $25,000 driven by enormous annual gains in home prices nationwide. The floor applies to so called “low-cost” areas — counties where 115% of the median home price is less than the floor limit.
FHA’s loan limit ceiling will also increase, rising to $822,375 from $765,600. The ceiling applies in high-cost areas where the median home price greatly exceeds the floor limit, a scattered footprint that includes about 65 counties nationwide.
If a property lies within a metropolitan statistical area (MSA), the county that has the highest median price within the MSA determines the median home price for the entire MSA. Additionally, there are some areas where loan limits are determined differently due to factors such as construction costs. Those places include Alaska, Hawaii, the U.S. Virgin Islands and Guam; in those areas, the 2021 limit is $1,233,550.
The floor and ceiling limits are determined by the conforming loan limits set by the Federal Housing Finance Agency (FHFA) for loans backed by Fannie Mae and Freddie Mac. The FHA is required by law through the National Housing Act to compute its floor and ceiling based on those FHFA loan limits.
The FHFA set those last week, raising them in most areas of the country to $548,250. The floor is set at 65% of the conforming loan limit, while the ceiling is 150% of it.
The recent regular escalation of FHA loan limits prompted Federal Housing Commissioner Dana Wade to muse upon the reasons behind the increases.
“FHA has seen consistent increases in loan limits during the past few years, putting it in a position to serve a segment of borrowers that may be better-served by the conventional market,” Wade said. “FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375?
“This is a question for Congress and the taxpayers who stand behind FHA to answer.”
Maximum loan limits are set to rise in 3,108 counties nationwide, while another 125 counties will see no change in their loan limits between 2020 and 2021. No counties will see their loan limits decrease.
The new loan limits are effective for FHA case numbers assigned on or after January 1.