FHA Changes for 2019: Loan Limits Raised, Premiums Unchanged

Some important changes to the FHA loan program were announced last week. According to the Department of Housing and Urban Development (HUD), FHA loan limits for most U.S. counties will go up in 2019 in response to rising home values.

But program officials say there won’t be any reduction in FHA mortgage insurance premiums anytime soon. Here’s what you need to know about FHA loan changes for 2019.

FHA Loan Limits Increased for 2019

Home prices nationwide have risen steadily over the past year or so. As of December 2018, the median home value in the United States was $221,500. That was an increase of around 7.7% from a year earlier, according to Zillow. Prices are expected to continue rising in much of the U.S., throughout 2019.

As a result, federal housing officials have increased the conforming loan limits for most of the U.S. in 2019. VA and FHA loan limits will go up as well.

According to a December 14 press release from HUD:

“The Federal Housing Administration (FHA) today announced the agency’s new schedule of loan limits for 2019, with most areas in the country to experience an increase in loan limits in the coming year. These loan limits are effective for FHA case numbers assigned on or after January 1, 2019.”

In 2019, FHA loan limits will range from $314,827 to $726,525 for a single-family property. That’s the maximum mortgage size the Federal Housing Administration is able to insure.

There are exceptions for locations with higher construction costs, such as Hawaii, Alaska, Guam and the Virgin Islands. In these “special exception” areas, the FHA loan limit for a single-family property will be increased to $1,089,787 in 2019.

It’s important to note that these limits vary by county, since they are based on median home values. More expensive real estate markets (like San Francisco and New York City) have limits of up to $726,525. Other, more affordable markets tend to have lower limits.

So that’s the first FHA loan change for 2019. Borrowers will have a higher level of financing to work with next year, to go along with higher home prices.

The second announcement is more of a continuation of the status quo, rather than a policy change. And it has to do with FHA mortgage insurance premiums.

No Reduction in Mortgage Insurance Premiums

Borrowers who use FHA loans to purchase a home usually have to pay for mortgage insurance. With the FHA program, there are actually two of these premiums — upfront and annual.

During the end of his time in office, President Obama signed a measure that would have reduced the annual mortgage insurance premium for FHA loans. That reduction would have saved borrowers an average of $500 per year, according to officials. But it was later canceled by President Trump, shortly after he took office.

Over the past few months, some industry groups have urged HUD and FHA to lower the annual premium (as was previously planned). But that doesn’t appear likely during 2019.

During a November 2018 phone call with reporters, FHA’s Commissioner Brian Montgomery explained:

“We do have to be realistic about the fact that that is still a relatively thin margin. While the MMI Fund is sound at this point in time, I think we’re still far away from being in a position to consider any reduction in our mortgage insurance premiums.”

The “margin” he was referring to is the difference between (A) the capital reserve level that’s required by law and (B) the actual reserves in the fund. Those reserves are used to cover insurance claims from lenders, when borrowers default on their loans. 

So there you have them: one FHA loan change for 2019, and one non-change. Loan limits are going up in most counties across the U.S., but there doesn’t appear to be an insurance premium cut on the horizon.