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FHA High-Cost Loan Limits Set to Drop in 2014


It’s no secret FHA loans have been extremely popular during the latest housing recovery, thanks to their low down payment and credit score requirements.

Before recent changes, FHA loans tended to be a better option than conventional mortgage loans because of relatively low mortgage insurance premiums and cheaper mortgage rates.

Additionally, when the high-cost conforming loan limit (for Fannie and Freddie loans) dropped to a maximum of $625,500 in late 2011, the FHA became the only game in town for those looking to take out the largest loans possible while avoiding the jumbo realm and the restrictions that come with it.

Though the FHFA dropped the high-cost conforming loan limit over a year ago, HUD kept its high-cost loan limits intact, allowing prospective borrowers to take out loans as large as $729,750 in the priciest regions of the country.

These limits are still available until the end of the year, at which point the new national loan limit “ceiling” will align with the max high-cost conforming limit of $625,500.

In short, this is a blow to those in higher-cost regions of the country looking to put down as little as possible when purchasing a home, especially with the 3% down mortgage going the way of the dodo.

650 Counties Nationwide Will Have Lower FHA Loan Limits Next Year

HUD said about 650 counties will have lower loan limits as a result of this change.  Places like Los Angeles, the San Francisco Bay Area, Washington DC, New York City, and parts of Colorado and Virginia will see loan limits fall from the current ceiling of $729,750 to the new ceiling of $625,500.

The national loan limit “floor” for FHA loans will remain unchanged at $271,050 in 2014, which is set at 65% of the conforming loan limit.

Certain areas of the country will have loan limits in between the floor and ceiling, including parts of California, Florida, and Illinois, along with other major metros nationwide.

This was done by design to usher in private capital and return the FHA to its original mission of serving the underserved, which aren’t the rich and well-to-do.

The FHA is also grappling with massive losses on older loan vintages, which has forced the agency to make several changes to shore up reserves, including imposing higher mortgage insurance premiums and requiring coverage to stay in force much longer.

For these reasons, conventional loans are often a better deal nowadays unless you absolutely cannot put down at least 5% on your mortgage.

2014 Low-Cost FHA Loan Limit Floors

One-unit property – $271,050
Two-unit property – $347,000
Three-unit property – $419,425
Four-unit property – $521,250

2014 High-Cost FHA Loan Limit Ceilings

One-unit property – $625,500
Two-unit property – $800,775
Three-unit property – $967,950
Four-unit property – $1,202,925

2014 High-Cost FHA Loan Limit Ceilings (Alaska, Guam, Hawaii, Virgin Islands)

One-unit property – $938,250
Two-unit property – $1,201,150
Three-unit property – $1,451,925
Four-unit property – $1,804,375

In Alaska, Guam, Hawaii, and the Virgin Islands, the ceiling is 150% higher because of more expensive construction costs.

By the way, if you’re an existing FHA borrower, you can utilize the streamline refinance program regardless of loan balance.

And Home Equity Conversion Mortgages (HECM) are subject to a maximum claim amount of $625,500, regardless of whether in the contiguous United States or the special exception areas listed above.

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