Rising Home Prices Mean Higher 2018 Loan Limits for FHA, Others
One part of buying a home has gotten easier in 2018, owning to a big boost in FHA loan limits and the lending caps for Fannie Mae, Freddie Mac and VA mortgages.
For most of the country, the maximum you can borrow with an FHA loan for a single-family home has been increased to $294,515, up from $275,655 in 2017. Moreover, in certain counties with unusually high housing prices, the limit can go as high as $679,650, up from $636,150 last year.
The limit for FHA reverse mortgages, also called home equity conversion loans, also rises to $679,650 in all parts of the country, regardless of local home values.
Conforming loan limits
The baseline Freddie Mac and Fannie Mae loan limit got an even bigger boost for 2018, to $453,100, up from $424,100 last year. Again, that is the maximum loan amount allowed for a Fannie Mae- or Freddie Mac-backed mortgage in most of the country; as with FHA loans, the limits in areas with high real estate values can go as high as $679,650 in the lower 48 states and up to $1 million-plus for certain parts of Hawaii, Alaska, Guam and the U.S. Virgin Islands.
Mortgages backed by Freddie Mac and Fannie Mae are called conforming loans, because they conform to the two agencies' lending guidelines. These are the "standard" mortgages offered by most U.S. mortgage lenders. Home loans in excess of those limits are called jumbo loans and have different lending criteria and usually carry somewhat higher mortgage rates.
As noted, the above figures are for single-unit homes; higher limits are available for properties with up to four residential units. Limits are for both.
VA loan limits
VA loan limits closely track Freddie Mac and Fannie Mae limits; once again, the limit in most of the country is $453,100 and up to $679,650 in areas with high real estate values. However, the VA does not exceed that high-value maximum for areas outside the lower 48 states, except for limits of $713,000 and $721,050 in Kauai and Honolulu counties in Hawaii, respectively.
The VA loan limits work differently than the Freddie Mac, Fannie Mae and FHA loan limits; you can still exceed those limits with a VA loan, but instead of going to a jumbo loan you merely need make a down payment equal to 25 percent of the amount above the limit. No down payment is required on VA loans at or below the limit, provided a borrower has their full VA guaranty available.
How loan limits are set
The Federal Housing Finance Agency (FHFA) sets the annual loan limits for Freddie Mac and Fannie Mae each year, adjusting for increases in housing values nationwide. In counties where 115 percent of median home values exceed the baseline limit ($453,100), a higher loan limit is allowed, up to 150 percent of the baseline ($679,650). Special higher limits are allowed in Alaska, Hawaii, Guam and the U.S. Virgin Islands.
The FHA and VA model their loan limits after those set by the FHFA, with certain modifications, most notably the lower baseline limit for FHA loans.