For many, the American dream is homeownership, buying a place for your family to put down roots, grow up together, and make memories. Since its inception in 1934, the FHA program has helped some 40 million Americans become homeowners.
Becoming a homeowner might be the American dream, but the process is daunting and can feel impossible for many. For many lower-income Americans, saving enough money to buy a house can seem impossible.
For this reason, the FHA program is essential. Want to learn more about the FHA loan limits for 2021, so you too can pursue the dream homeownership?
Read on to learn more about the FHA loan program, what it takes to get an FHA loan, and more about the lending limits that are part of the program.
What Is FHA?
An FHA loan is a mortgage that the Federal Housing Administration backs. It allows borrowers to get a mortgage with a smaller down payment. It also allows potential homeowners who have lower credit and lower-income to get a loan still.
One important thing to note about FHA loans is the Federal Housing Administration does not provide the loan. Applicants seeking a mortgage go to private lenders, like banks and mortgage companies, to get the mortgage. The FHA insures the mortgage for the private lender.
Those who want an FHA loan need to find a lender who offers FHA loans. Then apply to that lender. They would still need to meet lenders’ requirements when applying.
Lending Limits for FHA
The FHA program sets limits each for the amount of the loan that they will insure. These are referred to as the lending limits that are selected each year. FHA considers the lending limits also in place for Fannie Mae and Freddie Mac.
The lending limits are set based on what you hope to purchase, whether that is a single-family home, a duplex, or a multi-family dwelling. The lending limits are also slightly different based on location.
In 2021, the FHA set the lending limit for single-family homes at $356,362. This limit means that is the maximum amount you could borrow in an FHA loan. This limit is in place for 80% of the counties across the U.S.
The FHA also has lending limits for what they define as high-cost living areas. In these parts of the country, the other 20% of the counties), the lending limits are higher to accommodate the higher cost of real estate in those areas. The high-cost living area limit for 2021 was set at $822,375 for single-family home loans.
The lending limit for duplexes in low-cost areas is $456,275, while in high-cost areas, the limit is $1,053,000. If you hope to purchase a tri-plex, those limits are $551,500 and $1,272,750 for low-cost and high-cost areas. Finally, buying a four-plex, the low-cost limit is $685,400, and the high-cost limit is $1,581,750.
The National Housing Act requires the FHA to set these lending limits. They should be based on 115% of an area’s median house prices. The U.S. Housing and Urban Development provide a website where you can enter where you live, and it will give you information on the single-family home loan-limits for 2021.
Types of FHA Mortgages
The criteria for qualifying for an FHA mortgage remain on income and accommodating a little lower credit score. There are several different types of FHA loans you might seek.
The traditional mortgage for FHA loans is by far the most widely used in the FHA family. This type of FHA loan sets up a traditional mortgage agreement where the borrower will live there as their primary residence.
Another type is the home equity conversion loan, often referred to as a reverse mortgage. This option allows individuals who are 62 or older and still have a low income, get equity from their home through an FHA-backed loan.
Do you want your home to optimize energy efficiency? Then it would help if you looked into the energy-efficient mortgage program. This type of mortgage allows you to buy the home in question. The mortgage also includes extra funding for you to make energy improvements to the property.
The 203(k) mortgage allows you to buy or refinance a house in need of some renovations. When you get the mortgage, you get enough funds to buy the property and get extra funds to do the needed renovations. The nice thing about this type of mortgage is that not only can you get the renovations done, but you can also pay for it over time in the mortgage.
As you know, one qualifier for an FHA loan is to be low-income. The final type of FHA mortgage is called a Section 245(a) loan. This Graduated Payment Mortgage (GPM) is perfect for people who anticipate making more income over time.
With the GPM, your mortgage payments increase over time as your income increases too.
You could also do a Graduated Payment Mortgage (GPM). With this type of loan, you gradually increase the amount of principal you pay on the mortgage. The increased payments allow the life of the mortgage to shorten over time.
Understanding FHA Limits for 2021
Through the U.S. Department of Housing and Urban Development, the FHA loan program helps people get mortgages and become homeowners when their options to do so might have been limited before. With a lower income and maybe less than perfect credit, people can get a mortgage.
The FHA loan limits for 2021 help you understand what limits will be placed on you as you look for a home, hoping to secure an FHA loan.
If you are looking for mortgage services, we can help. We offer various mortgage services to those living in New Jersey, Pennsylvania, Virginia, New York, Delaware, Maryland, Florida, Georgia, or Colorado. Contact us today to start discussing your mortgage options.
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