It’s probably no secret, at least in the housing and finance industries, that the FHA mortgage is the number one pick by first time home buyers. Why is that? FHA loans are one of three government-backed mortgage programs designed to finance a primary residence.
FHA loans are easier to save up for because the minimum down payment is only 3.5% of the sales price. Credit requirements are lower for FHA loans. The minimum credit score for an FHA loan is 580 whereas a minimum credit score for a conventional loan is 620 for most programs.
However, FHA does issue home loan limits which will vary based upon the location of the property. FHA loans nationally are set at 65% of the conforming loan limit for the area. The current conforming loan limit for 2019 is $484,350. That puts the FHA loan limit at $314,827 for a single family home and higher for multi-unit properties.
Each fall when the Federal Housing Finance Agency, or FHFA reviews the median home values for the entire country, they compare those numbers with the previous year. Because the 2017-2018 review showed an increase in values the conforming loan limit was increased accordingly for 2019. Since the conforming limit went up so too did the FHA limit.
But what about areas where the property values are much higher compared to the rest of the country? In many places, mostly coastal in high-density urban areas, the $314,827 is simply too low to finance a home. However, many of these areas are officially labeled a “high cost” and higher conforming and FHA loan limits are also adjusted to address these areas. In high cost areas, there are “high balance” FHA loans that allow borrowers to take advantage of the FHA loan program instead of taking out a higher-cost jumbo mortgage.
In high cost areas the maximum FHA loan is set at 150% of the national conforming loan limit. This can put the maximum FHA loan as high as $726,525. For an owner-occupied fourplex the maximum FHA high balance loan limit is $1,397,400.
If someone is shopping for a home and not sure if the area is deemed high cost, a quick phone call to a loan officer can help. The loan officer will need the exact location of the home, including the county, in order to research the maximum loan limit. Note that maximum high balance limit is not automatically $726,525 for a single family home. It can be lower than that while higher than the standard FHA minimum.
Underwriting guidelines for FHA high balance loans are mostly the same for a traditional FHA mortgage. The home must be owner-occupied, income and employment history is verified and minimum credit scores will be reported along with verifying there are sufficient funds available for the down payment, closing costs and cash reserves. In areas deemed high cost, the FHA high balance mortgage deserves a look.