FHA loan limits increase for single-family and multifamily loans

Dan Green
The Mortgage Reports contributor

2021 FHA loan limits range from $350K to over $1.5 million

FHA loan limits just increased for all home buyers and refinancing homeowners.

The new baseline FHA loan limit is $356,362 for single-family homes.

Multifamily loan limits now go up to $685,400 for a 4-unit property.

And that’s just the “floor.” In high-cost areas, the FHA loan limit “ceiling” goes all the way up to $822,375 for a single-family home and over $1.5 million for a 4-unit property.

Though loan limits have increased, FHA mortgages are still available with a credit score starting at 580 and 3.5% down.

And, FHA mortgage rates are still sitting at historic lows.

Verify your FHA loan eligibility (Oct 27th, 2021)

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FHA loan limits by county for 2021

In order to get approved for an FHA loan, your mortgage must be within the maximum loan amount the FHA will insure. Known as “FHA loan limits”, these maximums vary by county.

This year the Department of Housing and Urban Development (HUD) is increasing FHA loan limits in almost every county (3,100) while just 125 counties will remain the same.

There are four different pricing tiers for FHA loan limits: a standard tier, a mid-range tier, a high-cost tier, and a special exception tier.

In low-cost counties, FHA loan limits are now capped at $356,362 for a single-family home loan.

In high-cost counties, FHA’s single-family loan limit is $822,375.

However, many counties fall in the ‘mid-range’ category with limits somewhere between the floor and ceiling.

Single-family (one-unit) FHA loan limits

Low-Cost Area $356,362
Mid-Range Area $356,363–$822,374
High-Cost Area $822,375
AK, HI, Guam, & Virgin Islands $1,233,550

According to FHA’s guidelines, a low-cost area is one where you can multiply the median home price by 115% and the product is less than $356,362.

Similarly, a high-cost area is one where the median home price multiplied by 115% is greater than $822,375. There are just 65 U.S. counties with home prices high enough to qualify for FHA’s maximum loan limit.

There are also ‘special exception’ loan limits in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In these areas, FHA caps single-family home loans at a surprising $1,233,550.

FHA says the higher loan limits in Alaska, Hawaii, Guam, and the Virgin Islands are meant to “account for higher costs of construction.”

You can look up your local FHA loan limits using this search tool.

Verify your FHA loan eligibility (Oct 27th, 2021)

FHA multifamily loan limits

The Federal Housing Administration also backs mortgages on 2-, 3-, and 4-unit properties. These types of homes have higher loan limits than single-family residences.

FHA multifamily loan limits

  2-Unit Property 3-Unit Property 4-Unit Property
Low-Cost Area $456,275 $551,500 $685,400
Mid-Range Area $456,276–$1,052,999 $551,501–$1,272,749 $685,401–$1,581,749
High-Cost Area $1,053,000 $1,272,750 $1,581,750
AK, HI, Guam, & Virgin Islands $1,579,500 $1,909,125 $2,372,625

Although FHA allows multifamily home loans, the property must still be considered a ‘primary residence.’ That means the homebuyer needs to live in one of the units full time.

In other words, an FHA loan cannot be used to purchase an investment property. However, you can use an FHA mortgage to purchase a 2-4 unit property, live in one unit, and rent out the others.

In this way it’s possible to get a multifamily loan up to $1.5 million with a low-rate FHA loan and just 3.5% down payment.

What is an FHA loan?

It can be confusing, but the Federal Housing Administration is not actually a mortgage lender. Rather, it’s a mortgage loan insurer

The FHA provides insurance for banks and lenders that make FHA loans.

Payment for this insurance is known as the FHA ‘mortgage insurance premium’ (MIP). It’s paid by homeowners but protects FHA mortgage lenders against losses from loan defaults or foreclosure.

The main benefit of FHA-backed loans is that they’re often easier to qualify for than conforming mortgages.

FHA loan requirements tend to be more lenient for first-time, low-credit, and lower-income borrowers.

As a few examples of the FHA’s buyer-friendly rules:

  • FHA mortgages require a down payment of just 3.5 percent
  • FHA loan down payment monies can be gifted from a family member
  • The minimum credit score requirement for an FHA loan is 580 in most cases

There are other FHA loan perks, too.

For example, FHA loans are assumable. This means that a future buyer of your home can “assume” its existing mortgage at whatever the mortgage rate happens to be.

If today’s mortgage rates are 3% and rates are 10% when you sell, instead of applying for a new loan, your buyer can assume your existing 3% FHA mortgage rate instead. This can make your home much easier to sell in the future.

Another FHA loan perk is that FHA mortgage rates don’t change with low credit scores or property type. FHA mortgage rates are the same, no matter whether your score is a 740 or a 580; or, whether you live in a single-family home or a 4-unit.

All FHA borrowers get access to the same, below market mortgage rates that make FHA financing so attractive.

Check today's FHA loan rates (Oct 27th, 2021)

FHA vs. conforming loan limits

FHA mortgage limits are closely tied to conforming loan limits.

Every year, the Federal Housing Finance Agency (FHFA) updates its home price index. This is used to set both conforming loan limits and FHA loan limits. But the two are calculated differently. 

Conforming loans — which follow guidelines set by Fannie Mae and Freddie Mac — have higher loan limits than FHA mortgages.

For example, look at the standard, single-family loan limits for 2021.

  • FHA’s loan limit “floor” is $356,362
  • The conforming loan “floor” is $548,250 — a full $190K higher

However, not everyone can qualify for higher loan amounts via a conventional mortgage.

Fannie Mae and Freddie Mac require a minimum credit score of 620 for a conforming loan. And for borrowers with credit on the lower end of the spectrum, they charge higher rates and expensive private mortgage insurance (PMI).

FHA loans are more attractive for borrowers with fair credit despite having lower loan limits.

It’s possible to qualify for FHA financing with a credit score as low as 580, and a low score won’t force you into a high interest rate.

The FHA does charge its own mortgage insurance premium. But this is often more affordable than conventional loan PMI for borrowers with low credit and a small down payment.

FHA Streamline Refinance loan limits

One perk of having an FHA loan is that you can refinance using the FHA Streamline Refinance program.

The FHA Streamline is a low-doc loan that gives homeowners the ability to refinance without having to verify income, credit, or employment.

When you refinance via the FHA Streamline program, your new loan must be within local FHA loan limits. But this will not be an issue.

Since the FHA Streamline can only be used on an existing FHA loan — and no cash-out is allowed — you won’t be able to increase your loan balance above current FHA mortgage limits.  

Other requirements for the FHA Streamline Refinance include:

  • You must be making your current mortgage payments on time. The FHA wants to see that your last 3 mortgage payments have been paid on time, and that you’ve been late on payments no more than one time in the last 12 months
  • Your current FHA mortgage must be at least 6 months old. The FHA will verify that you’ve made at least six payments on your current mortgage before allowing you to use the FHA Streamline Refinance program
  • The agency will verify that there’s a “benefit” to your refinance. Known as the Net Tangible Benefit clause, your “combined rate” must drop by at least 0.5%. You can achieve this portion of FHA eligibility by dropping your interest rate, mortgage insurance rate, or a combination of both

If you meet these guidelines, the FHA Streamline is a great way to refinance into today’s ultra-low mortgage rates and lower your monthly payment.

Today’s FHA loan rates

FHA mortgages are riding the low-interest-rate wave. With mortgage rates at historic lows, and loan limits on the rise, it’s an excellent time to consider FHA financing.

Check with a lender to see how much home you can afford thanks to 2021 FHA loan limits.

Verify your new rate (Oct 27th, 2021)