Like any type of loan, an FHA loan is only provided under certain circumstances. It’s important to understand what these restrictions are.
First, what exactly is an FHA loan?
An FHA (Federal Housing Administration) loan is a government-run mortgage loan that helps people purchase (or refinance) homes who aren’t able to make a large down payment.
The difference between an FHA loan and other mortgage loans is that the FHA isn’t providing the money. Instead, it offers mortgage insurance for FHA-approved lending companies that are granting this loan to their clients. So, the lending company issues the money to a home buyer, and if that home buyer defaults on the loan, the lender would be covered by the FHA and avoid suffering a loss.
Since lenders are protected by the FHA, it can be easier for borrowers to qualify for an FHA loan than for other types of mortgage loans. If your credit score, for instance, isn’t where you want it to be due to past financial struggles, you may still qualify for an FHA loan.
What are FHA loan limits?
Loan limits set by the FHA restrict how much money home buyers are able to borrow. These restrictions differ based on several key factors:
• Property Type (i.e. Single-family home, Duplex, Triplex, Fourplex)
• Average House Prices in the Area
Some FHA loan limits can be similar in certain places, specifically counties in the same state.
Here’s an example:
Based on the 2016 FHA loan limits, a home buyer looking to purchase a single-family home in Nassau County, N.Y., would face a $625,500 loan limit whereas a home buyer looking to buy the same type of property in California’s Placer County would have a $474,950 limit.
Meanwhile, a home buyer wanting to purchase a single-family home in Michigan’s Jackson County could get up a loan up to $271,050.
Three different counties. Three different states. Three different loan limits.
But the loan limits are the same for Nassau County and Suffolk County—both on Long Island—so it’s easy to see how they overlap.
You can learn more about the 2016 limits on the FHA website.
FHA loans can really help house hunters get their foot in the door and afford their dream homes, especially if they’re buying their first homes.
Whether you’re looking to obtain a FHA 203k loan or any other type of FHA loan, be sure to learn what the limits are and find out if you qualify. The most efficient way to do this is by contacting a reliable mortgage lending company that can explain the information for you and answer any further questions you may have.