See how much in loans the Federal Housing Administration is offering home buyers. (iStock)
Coronavirus hasn’t long impacted the housing market – from loan rates to inventory. In response to the escalating house prices seen in 2020, the Federal Housing Administration is offering higher loan limits for FHA loan products in the new year.
FHA loans are a type of mortgage loan supported by the Federal Housing Administration. These types of loans are particularly popular with first-time home buyers, as FHA loans allow up to 3.5% down payments and the eligibility criteria are less stringent when compared to other types of mortgage loans.
FHA loans are provided by traditional lenders, not by the Federal Housing Administration. Instead, as the FHA “guarantees” these loans, banks can lower their eligibility criteria for potential borrowers who would otherwise be considered “high risk” for more traditional loan products.
If you are unsure whether an FHA loan is right for you and would like to consider other home loan options, go to the market for several Credible Lenders. Go to Credible now to compare rates and creditors in minutes.
To learn more about FHA loans – and other mortgage lending options – read on.
What are the FHA loan limits for 2021?
The new FHA loan limits are very good for buyers – particularly first home buyers in expensive metropolitan areas or places with limited inventory.
“This increase allows them to see a wider range of properties without having to qualify for a loan accordingly,” says Chris Wolf, vice president of mortgage loans at Mutual of Omaha Mortgage. “Compliant loans are more restrictive with respect to debt / revenue and may have a higher rate or mortgage insurance payment depending on the credit.”
The FHA loan limits are designated in two categories: “low cost” and “high cost” areas. Whether an area is “high cost” or “low cost” depends a lot on population density and the cost of living. When a large number of houses in the area far exceed the average home value, the loan limit for that location increases. For low-cost areas, the limits are set at 65% of the baseline compliance limit. High-cost areas can go up to 150% of the baseline.
“The compliance loan limit has increased by $ 38,000,” explains Wolf. “This is especially good for people at or near that amount, because when you exceed a loan amount of $ 548,250, it becomes a jumbo loan with much more restrictive and costly guidelines.”
Although Credible does not currently offer FHA loans, it is still a good idea to see what other lenders are offering – and whether that makes more sense for your situation. Credibility makes it easy to find out what rates you qualify for. Just enter some simple information here.
Low cost area limits
- Single Family – $ 356,362 (up from $ 331,760 in 2020)
- Duplex – $ 456,275 (up from $ 424,800 in 2020)
- Triplex – $ 551,500 (up from $ 513,450 in 2020)
- Four units (Quadplex) – $ 685,400 (up from $ 638,100 in 2020)
High cost area limits
- Single Family – $ 822,375 (up from $ 765,600 in 2020)
- Duplex – $ 1,053,000 (up from $ 980,325 in 2020)
- Triplex – $ 1,272,750 (up from $ 1,184,925 in 2020)
- Four units (Quadplex) – $ 1,581,750 (up from $ 1,472,550 in 2020)
HOW TO FIND THE BEST MORTGAGE RATES AND THE FASTEST CLOSES
How to qualify for an FHA loan
To qualify for the FHA mortgage loan product, borrowers must have:
- Minimum credit score of 500
- At least 3.5% of the purchase price of the home for an initial payment. Those with credit below 580 will need at least 10%.
- An initial maximum debt-to-income ratio of 31% and a debt-to-income ratio of 43% or less for all debts.
There are also stipulations on the type of property you can purchase with an FHA loan.
- Must do an FHA assessment and home inspection
- The home loan should only be used for the main residence
- No houses were bought in the last 90 days and then resold (no turnaround!)
To see how much your monthly mortgage payment could be, use an online purchase calculator to see the difference in interest rates, advances and mortgage terms. You can also use Credible’s free online tools to see what rates you should qualify for.
HOW WOULD YOU BENEFIT FROM ADJUSTABLE RATE MORTGAGE
Other mortgage options
If an FHA loan does not meet your needs, there are other mortgage options available.
- Conventional loans: Conventional loans are the most common type of mortgage loan; they are loans not guaranteed by the government, but by a traditional lender.
- Interest-only loans: As it seems, in the case of interest-only mortgages, borrowers pay only the interest on the loan for a certain period and make no contribution to the balance of the principal loan.
- Loans at adjustable rates: Adjustable rate mortgages have rates that fluctuate with the markets and adjust periodically over time.
- Jumbo Loans: This is a loan above the “compliant loan” limit ($ 548,250 in 2021). This often requires a score of 700 credits or more.
- VA Loans: Another type of loan guaranteed by the government these are offered only to veterans of the armed forces.
Analysts predict that the housing and refinancing boom will continue until 2021. Now, with higher loan limits, buying a home is more accessible to buyers ready to start their real estate adventure. Before purchasing, first check mortgage rates and receive pre-approval from an online mortgage broker like Credible.
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