FHA Loan Limits Increased for 2021, Due to Rising Home Prices

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Earlier today, the Department of Housing and Urban Development (HUD) announced it would be increasing the FHA loan limits for 2021. These limits apply to mortgage loans that are insured through the Federal Housing Administration (FHA) home loan program.

In 2021, FHA loan limits for a single-family home purchase will range from $356,362 on the lower end, up to $822,375 in more expensive real estate markets. Those are the so-called “floor” and “ceiling” limits, respectively, that apply to FHA-insured purchase mortgage loans.

These changes will take effect on January 1, 2021.

New FHA Loan Limits for 2021

In 2021, the new FHA loan limit for most counties across the U.S. will go up to  $356,362, a slight increase from the 2020 cap of $331,760.

In “high-cost areas,” such as San Francisco and Washington, D.C., the 2021 FHA loan limit will rise to $822,375 (up from its current level of $765,600). Again, these changes will apply to mortgage loans with a case number assigned on or after January 1, 2021.

The limits for next year are going up for most — but not all — counties across the U.S. According to a HUD news release published on December 2:

“Due to robust increases in median housing prices and required changes to FHA’s floor and ceiling limits, which are tied to the Federal Housing Finance Agency (FHFA)’s increase in the conventional mortgage loan limit for 2021, the maximum loan limits for FHA forward mortgages will rise in 3,108 counties. In 125 counties, FHA’s loan limits will remain unchanged.”

In some counties, home prices did not rise enough in 2020 to justify having higher limits in 2021. That accounts for the 125 unchanged counties mentioned in the quote above. But for most of the country, they’ll be going up to keep pace with home-price appreciation.

The bottom line here is that home buyers who want to use the Federal Housing Administration’s mortgage program in 2021 will have a higher financing range to work with.

But it’s important to realize the FHA does not lend money directly to borrowers. They insure loans that are made by “regular” banks and mortgage lenders operating within the private sector. So it’s up to the lender to determine how much a person can borrow, when using the FHA loan program. HUD simply establishes a maximum borrowing amount, or limit, for all borrowers.

Maximum Mortgage Size for High- and Low-Cost Areas

FHA loan limits can vary from one county to the next, due to variations in home prices. But they are usually the same across an entire metro area. According to HUD, these limits are determined by “using the county with the highest median price within the metropolitan statistical area.”

Low-Cost Areas

Most counties across the U.S. are considered to be “low-cost” areas, in terms of the median or typical home price. Here are the 2021 loan limits for these low-cost counties, based on property type:

  • One-unit: $356,362
  • Two-unit: $456,275
  • Three-unit: $551,500
  • Four-unit: $685,400

Note: In this context, a “one-unit” property is a regular single-family home with only one residence. “Two-unit” refers to a duplex-style multifamily property, and so on.

High-Cost Areas

Within the context of FHA loan limits, a “high-cost” area is one with a median home price that’s significantly higher than the national average. San Francisco, New York City, and Washington, D.C. are three examples.

The 2021 FHA loan limits for these high-cost areas are as follows:

  • One-unit: $822,375
  • Two-unit: $1,053,000
  • Three-unit: $1,272,750
  • Four-unit: $1,581,750

Many counties in the U.S. fall somewhere between these low- and high-cost ranges, in terms of home prices. Thus, their FHA loan limits for 2021 will fall somewhere between the two ranges shown above.

Learn more: To find a complete list by county, along with a list of those counties where the limits will be going up for 2021, you can visit this page of the official HUD website.

A Response to Rising Home Prices

Housing officials at HUD have increased the 2021 FHA loan limits to keep up with rising home values across the U.S. This comes on the heels of a similar announcement issued by the Federal Housing Finance Agency in November, with regard to conforming loan limits.

For both conventional and FHA loans, the limits are going up in response to significant home-price gains that occurred during 2020.

Rising house values might seem counterintuitive, given the ongoing coronavirus pandemic and resulting economic slowdown we are still dealing with. But it’s true. Home prices in most cities across the country have risen steadily throughout the pandemic.

According to a November 19 report from Realtor.com: “Median listing prices grew at 12.6% over last year, marking the 14th consecutive week of double-digit price growth.”

Of course, real estate trends can vary widely from one city or region to the next. But the overall trend, nationally, has been upward in nature.

This is why we will see higher FHA loan limits in 2021.