Are you ready to become a homebuyer in 2024…but struggling with figuring out how you’re going to come up with a hefty down payment?
Luckily, FHA loans exist for that very reason – to make home buying more accessible.
However, there are limits to how much you can borrow. With the new 2024 FHA loan limits recently announced, now is the perfect time to explore your options and secure your dream home.
To help you navigate the world of FHA loans, we have all the information you need, including today’s current rates and other factors that might come into play.
Let’s explore how you can make the most of your borrowing potential – and get you one step closer to owning your dream home.
What Are FHA Loans?
FHA loans have been around for almost a century, and have helped millions of Americans achieve the dream of homeownership. But what exactly are they and who are they a good fit for?
First, a brief history.
The FHA, or Federal Housing Administration, was created in 1934 in response to the Great Depression and the housing crisis that followed shortly after. The ultimate goal of the FHA was to help make home ownership more affordable (and accessible) to everyday Americans who needed a boost.
One of the ways they do this is by backing loans made by FHA-approved lenders.
How FHA Loans Work
One of the biggest advantages of an FHA loan is the lower down payment requirement. While traditional loans often require 20% down, FHA loans only require a down payment of 3.5%. This can be a huge help to first-time homebuyers who may not have a large amount of savings.
Another advantage of FHA loans is the lower credit score requirement. While traditional lenders may require a credit score of 700 or higher, FHA-approved lenders may allow borrowers with a credit score as low as 580 to qualify for a loan. This can be a game-changer for those who may have had financial setbacks in the past.
FHA loans also have more flexible debt-to-income ratios, which allows borrowers to qualify for a higher loan amount than they might with a traditional loan. They also offer more flexibility when it comes to the types of properties that can be purchased using an FHA loan.
For example, as mentioned earlier, FHA loans can be used to purchase two, three, and four-unit properties. This can be a great way to get started in the real estate investing game! By living in one of the units and renting out the others, you could potentially make enough income to cover your mortgage payment and even turn a profit.
Of course, it’s important to remember that FHA loans aren’t perfect for everyone. They do come with certain requirements and restrictions, such as the primary residence rule (more on this later). Also, FHA loans do require mortgage insurance, which can add to the monthly payment.
With all that said, though, the benefits may outweigh the drawbacks for many borrowers
What Are FHA Loan Limits?
If you’re thinking of buying a home with an FHA loan, you might be wondering what the FHA loan limits are. In short, these limits define the maximum amount you can borrow with this type of loan.
First things first, let’s talk about how FHA loan limits are calculated. The Department of Housing and Urban Development (HUD) sets loan limits every year based on the median home prices in a particular area. For instance, if the median home price in your county is $400,000, the FHA loan limit (just the numbers for a single-family home, that is) in that area would be $400,000.
However, there are some areas where home prices are significantly higher than the national median. In these high-cost areas, the FHA loan limit is higher to make it feasible for homebuyers to purchase homes in these locations (San Francisco might be an example of a high-cost area).
It’s important to understand the max amount you can borrow with an FHA loan because this information impacts your purchase decision. If you’re looking at homes that are priced above the FHA loan limits, you may need to come up with a larger down payment or consider a different type of loan. On the other hand, if homes in your area are priced below the FHA loan limit, you might be able to get the home you want with a relatively small down payment.
Knowing the FHA loan limits also helps you avoid wasting time looking at homes you can’t afford. You can save yourself hours of searching for properties if you know your budget based on loan limits. You don’t want to get overly attached to a home you can’t afford to buy, so understanding these limits helps you stay focused and on track
2024 FHA Limits
FHA loan limits are typically set at 65% of the conforming loan limits. The FHFA adjusts the conforming loan limits annually based on changes in the national average home price. When the FHFA increases the conforming loan limits, the FHA adjusts its loan limits accordingly. Therefore, as home prices increase, so do FHA loan limits.
Now that we’ve cleared that up, what are the 2024 FHA limits?
Beginning January 1, 2024, the updated FHA loan limit for a single-family home is set at $498,257. This represents a significant jump from the 2023 limit of $472,030. Limits for properties with more units will also increase with the highest limit for a 4-unit property in a high-cost area sitting at a whopping $3,317,400.
If you’re looking to buy a home in a high-cost county, you’ll be pleased to know that the highest FHA limit for a single unit property is $1,149,825.
The FHA also has “special exception” limits for loans. These exist in Hawaii, Alaska, the U.S. VIrgin Islands, and Guam. Here, the limit is much higher – $1,724,725.
HUD is increasing limits in 3,138 counties for 2024. Only 96 counties will keep the same limits as 2023.
Just remember, with all these FHA loans – just because those are the limits, that doesn’t necessarily mean you’ll automatically qualify for the top, highest FHA loan amount. Your debt, credit score, and even the amount of your down payment will all substantially affect the maximum amount you can borrow.
Here’s a chart to break it down further:
| Property Size | Low-Cost Area | High-Cost Area | Alaska, Hawaii, Guam, US Virgin Islands |
|---|---|---|---|
| 1 Unit | $498,257 | $1,149,825 | $1,724,725 |
| 2 Units | $637,950 | $1,472,250 | $2,208,375 |
| 3 Units | $771,125 | $1,779,525 | $2,669,275 |
| 4 Units | $958,350 | $2,211,600 | $3,317,400 |
FHA vs. Conventional Loans and Their Limits
If you’re looking at the chart above and thinking the loan limit might not be high enough for you to buy your dream home, it’s important to understand the difference between FHA and conventional loans.
Again, FHA loan limits are tied to conforming loan limits, which are set by the Federal Housing based on the median home price in each area. So, if the median home price in your area is high, your loan limit will be higher.
However, there’s a catch. Conforming loans, loans that are backed by Freddie Mac and Fannie Mae, have higher loan limits than FHA loans. So, if you’re looking to borrow a lot of money, you may need to go with a conventional loan.
But here’s the thing: not everyone is able to get a conventional loan. Fannie Mae and Freddie Mac loans mandate a credit score of at least 620, and if your credit score is lower than that, you’ll likely have to pay higher interest rates and more costly private mortgage insurance (PMI).
On the other hand, FHA loans are more forgiving when it comes to credit scores. You can qualify for an FHA loan with a credit score of just 580, and you won’t be penalized with higher interest rates or PMI.
Of course, there’s a trade-off. FHA charges a mortgage insurance premium (MIP), which can add up over time. But it’s usually cheaper than conventional loan PMI, especially if you have a low credit score.
Another thing to consider is the down payment. FHA loans ask for a minimum down payment of 3.5%, which can be a lot for some borrowers. Conventional loans, on the other hand, can require a down payment of up to 20%. However, there are some conventional loans that allow for a lower down payment, like those backed by Fannie Mae and Freddie Mac.
FHA Streamline Refi
If you’re thinking about refinancing your existing FHA loan, you’re in luck – the FHA Streamline Refinance program may be just the option you need. Not only is it a low-doc loan, which means less paperwork for you, but it also comes with some great benefits.
First off, let’s explain what a low-doc loan means. Basically, it’s a loan that doesn’t require you to verify your employment, income, or credit score when you’re refinancing. So, if you’re worried about having to pull together a ton of documents, this program might be right up your alley.
Now, I know what you might be thinking – “But, is this program really safe?” And the answer is yes! The program is designed to minimize risks for homeowners, because refinancing is only allowed within local FHA loan limits. That means you won’t be able to raise or bump your existing balance above the 2024 FHA mortgage limits (or whatever year is current). This is a pretty important fact to keep in mind when considering if this program is right for you.
There are some other requirements you will need to meet, but it’s a program worth considering if you’re thinking about refinancing.
How Can You Apply for an FHA Loan?
Understanding the 2024 FHA loan limits is absolutely essential for anyone who’s thinking of applying for an FHA loan. With these limits in mind, you can figure out how much you may borrow in your area – and decide whether an FHA loan is the right choice for you.
Applying for an FHA loan is a straightforward process that involves providing necessary documents and meeting basic requirements. You can enjoy perks such as low down payments, lenient credit scores, and competitive interest rates that make FHA loans an excellent option for many Americans.
If you’re ready to explore your options with FHA loans, we encourage you to check out Andes Mortgage, LLC. Our team of experts is here to help you navigate the application process and find the best loan for your needs. Don’t let high home prices keep you from achieving your dreams – contact us today and let us help you get started!
