Higher FHA Loan Limits in 2015 Should Help Buyers

Between 2013 and 2014, FHA loan limits plummeted, making them unworkable for many who wanted to purchase property with a low down payment. Not only were limits adjusted to incorporate falling property values, but the formula being used to come up with these limits also changed. The 2008 Housing and Economic Recovery Act had temporarily raised FHA loan limits by jacking them up in the most expensive markets to $729,750. This year, they dropped back to $625,500. In addition, loan limits in the rest of the country, which were (temporarily) calculated at 125 percent of local median property values, are now being calculated at 115 percent. That made 2014 a tough year for FHA home buyers.

Rising Home Values = Rising FHA Loan Limits

In 2014, home prices rose in many markets in the US, and prices in September 2014 were up by 5.6 percent over home prices in September 2013. That's nationwide and includes sales of distressed properties. Of course, everyone knows that "all real estate is local," and the figures that pertain to your situation aren't the national ones -- they're broken out by metropolitan statistical areas (MSAs), which are usually (but not always) by county.

KLendingTree provides an FHA loan limit lookup feature that allows anyone to input a zip code and get an FHA loan limit for one-to-four unit properties. However, HUD has not updated this feature yet for 2015. Anyone who'd like to estimate their FHA loan limits for 2015 can do this by looking up the median home value in their MSA and multiplying it by 115 percent. There is a national floor of $271,050, which means even if the median home value is very low in a given area, the FHA loan limit won't be lower than $271,050. On the flip side, even if the median home value in a high-cost area is very high, the maximum FHA loan amount in those high-cost areas is $625,500.

Finding Your Median Home Price

To see where home prices are going in your neighborhood, your best bet is likely to be your local real estate board. The National Association of Realtors (NAR) collects a great deal of home price data, and most local Realtor groups publish home values monthly or quarterly. If property values in your area are up eight percent over last year, chances are your FHA loan limits will be going up by about that much. That means if your limit is $300,000 in 2014, in 2015 it would be $324,000.

Fannie Mae's 97 Percent Loan Might Go Higher

Those concerned about FHA loan limits in their area might soon have a better alternative. Fannie Mae announced in October 2014 that it was going to be purchasing 97 percent loans very soon. That means there will be mortgages with lower down payment requirements than the FHA product, and loan limits which could be higher than FHA's. In most cases, Fannie Mae's loan limit is $417,000. There are designated "high cost" areas with higher limits, with a maximum loan amount for a single family home topping out at $625,500.

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