Location, location, location! The geographical area of the property you buy or refinance with a Federal Housing Administration loan affects the amount you can borrow on a mortgage. The FHA sets maximum mortgage limits based on the median sale price in a given area. The limit amount also depends on property type. For example, a one-unit property in an expensive county is subject to higher loan limits than a four-unit property in a low-cost area.
Lenders approved to work with the FHA fund loans that the agency insures. The government guarantees repayment to the lender if a borrower defaults, allowing lenders to finance borrowers who might otherwise have trouble getting a loan under conventional terms. Eligible property types include one- to four-unit dwellings used as primary residences. The FHA's liberal credit and down payment guidelines and its maximum mortgage limits help make the program available for borrowers of modest means.
Most counties fall within the FHA's low-cost limits known as "floors." The agency uses a specific formula to set the floor limit. Fannie Mae and Freddie Mac, government-sponsored enterprises that buy and sell a majority of conventional mortgages, set the conforming loan limit annually. As of 2013, the FHA's "floor" is 65 percent of the $417,000 national conforming loan limit. The FHA's floor limits are: $271,050 for one-unit properties; $347,000 for two units; $419,425 for three units and $521,250 for four-unit properties.
The highest maximum limits, known as "ceilings," apply to high-cost counties. An area in which the loan limit exceeds the “floor” limit is considered a high cost area, according to HUD. The “ceiling” is set at 150 percent of the conforming loan limit. The FHA's high-cost area "ceilings" are as follows: $625,500 for one unit; $800,775 for two units; $967,950 for three units and $1,202,925 for four-unit properties.
Maximum mortgage limits for Alaska, Hawaii, Guam and the Virgin Islands exceed high-cost ceilings of the continental US due to the elevated cost of construction, according to HUD. A special exception is made for these areas, making the limits 150 percent of the FHA's "ceilings." The limits are as follows: $938,250 for one-unit homes; $1,201,150 for two units; $1,451,925 for three units and $1,804,375 for four units.
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.