There is not much that the coronavirus has not had an impact on the real estate market – de loan rate to inventory. In response to the rise in house prices seen in 2020, the Federal Housing Administration is now offering higher loan limits on FHA loan products in the New Year.
FHA loans are a type of mortgage supported by the Federal Housing Administration. These types of loans are particularly popular first time buyers, as FHA loans allow down payments as low as 3.5%, and the qualifying criteria are less stringent compared to other types of mortgages.
FHA loans are provided by traditional lenders and not by the Federal Housing Administration. On the contrary, since the FHA “guarantees” these loans, banks may lower their qualifying criteria to 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 want to consider other home loan options, head to the Credible Multi-Lender Marketplace. Head over to Credible now for compare rates and lenders in minutes.
To learn more about FHA loans and other mortgage options, read on.
What are the FHA loan limits for 2021?
The new FHA loan limits are very good for buyers – especially first-time homebuyers in expensive metro areas or localities with tight inventory.
“This increase allows them to look at a wider range of properties without having to qualify for a compliant loan, ”says Chris Wolf, vice president of mortgages for Mutual of Omaha Mortgage. “Compliant loans are more restrictive with debt-to-income ratios and could potentially have a higher rate or mortgage loan insurance payment based on credit.”
FHA loan limits are classified into two categories: “low cost” and “high cost” areas. Whether an area is “high cost” or “low cost” depends largely on population density and cost of living. When a large number of homes in the area far exceed the median home value, the loan limit for that area 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 compliant loan limit resulted in an increase of $ 38,000,” says Wolf. “This is especially useful for people at or near this amount, because once you go over a loan amount of $ 548,250 it becomes a jumbo loan with much more restrictive and onerous guidelines.”
While Credible doesn’t currently offer FHA loans, it’s always a good idea to see what other lenders are offering – and if that makes more sense for your situation. Credible makes it easy for you to know what rates you are eligible for. Fair enter some simple information here.
Low cost zone limits
- Single parent family – $ 356,362 (compared to $ 331,760 in 2020)
- Duplex – $ 456,275 (compared to $ 424,800 in 2020)
- Triplex – $ 551,500 (compared to $ 513,450 in 2020)
- Four units (Quadplex) – $ 685,400 (compared to $ 638,100 in 2020)
High cost zone limits
- Single parent family – $ 822,375 (compared to $ 765,600 in 2020)
- Duplex – $ 1,053,000 (compared to $ 980,325 in 2020)
- Triplex – $ 1,272,750 (vs. $ 1,184,925 in 2020)
- Four units (Quadplex) – $ 1,581,750 (compared to $ 1,472,550 in 2020)
How to qualify for an FHA loan
In order to qualify for the FHA mortgage product, borrowers must have:
- Minimum credit score of 500
- At least 3.5% of the purchase price of the house for a down payment. Those with less than 580 credit will need at least 10%.
- A maximum initial debt-to-income ratio of 31% and a debt-to-income ratio of 43% or less for all debt.
There are also stipulations on the type of property you can buy with an FHA loan.
- Must do FHA assessment and home inspection
- The mortgage must be used only for the main residence
- No house bought in the last 90 days and then resold (no house flips!)
To find out the amount of your monthly mortgage payment, use an online shopping calculator to see the difference in interest rates, down paymentsand mortgage conditions. You can also use Credible’s free online tools to see what rates you should qualify for.
Other mortgage options
If an FHA loan does not meet your needs, there is other mortgage options available.
- Conventional loans: Conventional loans are the most common type of mortgage loan, they are unsecured by the government, but rather by a traditional lender.
- Interest-only loans: As it seems, with interest-only mortgages, borrowers only pay the interest on the loan for a period of time and make no contribution to the principal loan balance.
- Adjustable rate loans: Variable rate mortgages have rates that fluctuate with the markets and adjust periodically over time.
- Jumbo Loans: This is a loan greater than the limit of the “compliant loan” ($ 548,250 in 2021). These often require a credit score of 700 or higher.
- VA loans: Another type of government guaranteed loan, these are only available to veterans of the armed forces.
Analysts predict the housing and refinancing boom will last until 2021. Now, with higher loan limits, home buying is more accessible to buyers ready to begin their real estate adventure. Before you shop, first, check mortgage rates and get pre-approved with an online mortgage broker like Credible.