What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA) division of the U.S. Department of Housing and Urban Development (HUD). Since the government insures FHA loans, required down payments and credit scores are lower than with conventional mortgages.
First-time homebuyers and people with credit issues commonly use FHA loans because they’re easier to get than a conventional mortgage. You may qualify for an FHA loan with a credit score as low as 500 and a down payment as small as 3.5%.
However, the amount you can borrow is capped at the FHA loan limit for your area. Rapid home price growth recently led to fewer loans falling within the limits, said Raul Hernandez, a mortgage loan officer with Competitive Home Lending, a broker in Allen, Texas.
“This sudden increase in home prices tested FHA's 2022 loan limits, specifically for potential homebuyers looking to take advantage of FHA's 3.5% down payment program,” he said.
Fortunately, FHA loan limits were increased in 2023 to reflect rising home prices, which is good news for borrowers.
What is the new FHA loan limit?
The 2023 FHA loan limits for single-family (one-unit) homes range from $472,030 to $1,089,030. The floor of $472,030 applies to homes in low-cost areas of the U.S., while the ceiling of $1,089,030 applies to homes in high-cost regions. This ceiling increases to $1,633,950 for properties in special exception areas (Alaska, Hawaii, Guam and the U.S. Virgin Islands).
The 2023 FHA loan limits for one- to four-unit properties are as follows:
| Area of the U.S. | One-unit property | Two-unit property | Three-unit property | Four-unit property |
|---|---|---|---|---|
| Low-cost area floor | $472,030 | $604,400 | $730,525 | $907,900 |
| High-cost area ceiling | $1,089,300 | $1,394,755 | $1,685,850 | $2,095,200 |
| Special exception area ceiling | $1,633,950 | $2,092,150 | $2,528,775 | $3,142,800 |
For example, in Arizona, the 2023 FHA loan limit on one-unit homes in the Tucson metropolitan statistical area (“MSA”) is $472,030, while the limit for the Phoenix-Mesa-Chandler MSA is slightly higher, at $530,150. By contrast, California’s one-unit FHA loan limit is $1,089,300 in Los Angeles and San Francisco counties versus $977,500 in San Diego County.
You can determine the FHA limit for the home you want to buy by using HUD’s FHA Mortgage Limits tool.
What to do if you don’t meet the FHA loan limits
The FHA loan limits are the maximum loan amount the FHA is willing to insure. You can only get FHA loans up to the limits established for your area. If the price of the home you’re purchasing is above this limit, you can increase your down payment so your loan amount is within the limit or get a different type of loan, like a conventional loan.
Conforming conventional loans are mortgages eligible to be purchased by Fannie Mae and Freddie Mac that the government doesn’t insure. As with FHA loans, you’ll need to meet conforming loan limits to get this type of loan. However, if your loan amount is above the conforming loan limit, you still might be able to get financing by meeting some additional criteria.
Loans above the conforming loan limits are considered “jumbo loans.” To get a jumbo loan, you’ll often need a better credit score, lower debt-to-income (DTI) ratio and larger down payment than a traditional conforming loan. Plus, you might pay a higher interest rate on a jumbo loan than on a loan that meets the conforming loan limits.
Additionally, if your down payment is less than 20%, you may be required to pay for private mortgage insurance (“PMI”), a common requirement no matter the size of your loan. The purpose of PMI is to protect your lender in the event you default on your loan. Loans with smaller down payments are riskier to lenders. PMI helps lenders mitigate some of this risk.
Frequently asked questions (FAQ)
How are conforming loan limits determined?
The Federal Housing Finance Agency (“FHFA”) sets limits in November of each year. It does so by evaluating the change in average U.S. home prices for the most recent four quarters, per the FHFA House Price Index. The FHFA increases or decreases the new conforming loan limit based on the percentage change in house prices it calculated.
The 2023 base conforming loan limit for one-unit properties starts at $726,200 for most U.S. regions, representing a 12.2% increase from 2022. It applies to conventional mortgages purchased by Fannie Mae and Freddie Mac.
Who sets conforming loan limit amounts?
Conforming loan limits are set by the Federal Housing Finance Agency each year using data from the FHFA House Price Index. Once conforming limits are set, the U.S. Department of Housing and Urban Development sets the FHA loan limits for mortgages insured by the Federal Housing Administration.
The minimum national FHA loan limit for one-unit properties is 65% of the base conforming loan limit, and the maximum FHA loan limit is 150% of the base conforming loan limit.
When does the 2023 loan limit go into effect?
The 2023 conforming loan limits and FHA loan limits went into effect on Jan. 1, 2023, and will stay in effect through Dec. 31, 2023. New conforming and FHA loan limits are published each year.
Bottom line
FHA 2023 loan limits generally increased across the U.S. FHA loans are particularly helpful if you have a low credit score or a small down payment, as it’s easier to qualify for an FHA loan than a conventional loan.
If the loan amount you need is higher than the FHA loan limit, you’ll need to make a larger down payment to bring the loan into compliance. If you can’t do this, you’ll have to consider getting a different type of mortgage.
Sources
- Congressional Research Service, “ The Loan Limits for Government-Backed Mortgages .” Accessed Jan. 3, 2023.
- Federal Housing Finance Agency, “ Conforming Loan Limit (CLL) Values .” Accessed Jan. 6, 2023.
- Federal Housing Finance Agency, “ FHFA Announces Conforming Loan Limit Values for 2023 .” Accessed Jan. 6, 2023.
- U. S. Department of Housing and Urban Development, “ FHA Announces New Single Family Title II Forward and Home Equity Conversion Mortgage Loan Limits for 2023. .” Accessed Jan. 3, 2023.
- U. S. Department of Housing and Urban Development, “ Let FHA Loans Help You .” Accessed Jan. 3, 2023.
- U. S. Department of Housing and Urban Development, “ Maximum Mortgage Limits 2023 .” Accessed Jan. 3, 2023.
- U. S. Department of Housing and Urban Development, “ FHA Mortgage Limits .” Accessed Jan. 3, 2023.
