FHA loan limits to increase in most counties in 2018

Written By: Joel Palmer, Op-Ed Writer

In another sign that the housing market is strong, the Federal Housing Administration (FHA) is increasing maximum loan limits for FHA forward mortgages in more than 3,000 counties next year. 

FHA attributed the widespread increase, in part, to “robust increases in median housing prices.” FHA is required by the National Housing Actto limits at 115 percent of median house prices, subject to a floor and a ceiling on the limits. FHA calculates forward mortgage limits by Metropolitan Statistical Area and county.

FHA was also required to update its loan limit floor and ceiling, which are tied to the Federal Housing Finance Agency (FHFA)'s increase in the conventional mortgage loan limit for 2018.

FHFA announced last month that it was raising the conforming loan limits for Fannie Mae and Freddie Mac in 2018. The amount is increasing from $424,100 to $453,100. 

The FHA floor is set at 65 percent of the national conforming loan limit. Therefore, it was also increased, from $275,665 to $294,515. 

Based on the volume of FHA endorsements in 2017, the agency set 82.1 percent of counties (2,655) at the loan floor, compared with 80.1 percent (2,589) in 2017.

The FHA loan ceiling in designated high-cost areas of the countrywill increase to $679,650 from $636,150.

For 2018, there will 75 counties at the loan limit ceiling, compared with 82 this year. High-cost areas include counties that comprise the following metropolitan areas:

•    San Francisco-Oakland-Hayward, CA
•    Los Angeles-Long Beach-Anaheim, CA
•    Napa, CA
•    San Jose-Sunnyvale-Santa Clara, CA
•    Santa Cruz-Watsonville, CA
•    Edward, CO
•    Glenwood Springs, CO
•    Breckenridge, CO
•    Washington, D.C.
•    Honolulu and Kapaa, HI
•    Jackson Wyoming-Idaho
•    Vineyard Haven, MA
•    New York City
•    Elizabeth City, NC
•    Summit Park, UT

FHA said that maximum loan limits for FHA forward mortgages will rise in 3,011 counties in 2018. They will only remain unchanged in only 223 counties. 

The recent imbalance between supply and demand has pushed home prices considerably higher, good news for sellers but not so much for buyers, especially those entering home ownership for the first time.

The National Housing Act, which was amended bythe 2008 Housing and Economic Recovery Act of 2008 (HERA), requires FHA to establish its floor and ceiling loan limits based on the loan limit set by FHFA for conventional mortgages owned or guaranteed by Fannie Mae and Freddie Mac.

Prior to HERA, the FHA mortgage limit for any given area was set at 95 percent of the median one-family house price in that area, as determined by HUD. The old law also set FHA mortgage limits at a floor of 48 percent of the Freddie Mac loan limit and a ceiling of 87 percent.

Since the enactment of HERA and The Economic Stimulus Act of 2008, which temporarily raised FHA limits even further, FHA's loan limits have been more closely tied to, and at times in excess of, those for GSE-eligible loans.

About the Author

As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

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