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Updated on Friday, December 21, 2018
Mortgages backed by the Federal Housing Administration (FHA) have received new loan limits for 2019.
The Federal Housing Administration (FHA), which is overseen by the U.S. Department of Housing and Urban Development’s Office of Housing, announced Friday that the new national loan limit — also called the “floor” — for one-unit properties in low-cost areas has increased from $294,515 in 2018 to $314,827 for 2019. This amount is set at 65% of the conforming loan limit for mortgages that follow Fannie Mae and Freddie Mac guidelines, which increased to $484,350 for 2019.
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Loan limits are increasing in more than 3,000 U.S. counties, but will remain unchanged in 181 counties. Next year’s FHA loan limits for multi-unit properties are:
- Two-unit: $403,125
- Three-unit: $487,250
- Four-unit: $605,525
FHA loan limits in high-cost areas have increased to the following amounts:
- One-unit: $726,525
- Two-unit: $930,300
- Three-unit: $1,124,475
- Four-unit: $1,397,400
The limit in high-cost areas is referred to as the “ceiling” and is set at 150% of the national conforming loan limit amount. A list of the counties at the ceiling as well as a list of those counties between the floor and ceiling can be found on HUD’s website.
How FHA loans measure up
FHA loans are a popular option for first-time homebuyers, typically due to the lower credit score and down payment requirements. In fact, nearly 83% of FHA loans went to first-timers during fiscal year 2018, according to data from the FHA’s Mutual Mortgage Insurance Fund report.
It’s possible to qualify for an FHA loan if you have a credit score of at least 580 and a 3.5% down payment; however, if your score falls between 500 and 579, you’ll need a 10% down payment. Other common requirements include a debt-to-income ratio of no more than 43% and documented proof of employment and sufficient income.
The FHA isn’t a lender — it just insures home loans, so you’ll ultimately need to go through an FHA-approved lender to apply for a mortgage.
Don’t forget MIP
Although FHA loans have less strict guidelines for borrowers, there are additional costs to consider, such as mortgage insurance premiums.
Because FHA borrowers have a lower threshold for a down payment, they are required to pay mortgage insurance. This extra cost is to protect the lender in the event the borrower defaults on their mortgage payments. There’s an upfront mortgage insurance premium, which is paid at closing, and an annual mortgage insurance premium that is divided into 12 installments and paid monthly as part of your mortgage payment.
The upfront premium is 1.75% of the loan amount. The annual premium ranges from 0.45% to 1.05%, depending on your loan-to-value ratio and loan term. Borrowers who put down less than 10% must pay mortgage insurance for the life of the loan, while those who put down at least 10% can drop their mortgage insurance premiums after 11 years.
FHA vs. conventional mortgage rates
Mortgage interest rates on FHA loans are comparable to rates on conventional loans, based on data from the Mortgage Bankers Association (MBA).
The average rate for a 30-year fixed-rate FHA loan clocked in at 4.97% and the 30-year fixed conventional loan rate averaged 4.96% for the week ending Dec. 7, 2018, according to the MBA’s weekly mortgage applications survey.
For a more thorough understanding of FHA lending, read our complete guide to FHA loans.