Every year, each loan program has mortgage loan limits. This is the maximum amount a lender is allowed to loan you under the program’s guidelines. This is not the amount you automatically qualify to receive, though. You still must qualify on your own based on your credit score, income, assets, and employment history.
Just how do these limits come about? We take a look below.
Conforming Mortgage Limits
Conforming mortgage limits are the king of all limits. It’s what not only Fannie Mae and Freddie Mac programs go by, but also FHA and VA loans.
The Federal Housing Finance Agency determines this limit every year. They use the House Price Index to determine the limit. This statistical data goes back to 1975. It shows the pattern of housing prices throughout each year. It’s this information the FHFA uses to determine the conforming limits.
In 2018, the new conforming mortgage limits are $453,100 in non-high-cost areas.
High-Cost Mortgage Limits
The conforming mortgage limits are for standard counties. However, there are many counties throughout the United States that are considered ‘high-cost.’ In 2018, the maximum loan limit in these high-cost areas is $679,650.
An area is considered ‘high-cost’ if 115% of the home values in the area exceed the conforming loan limit.
This doesn’t mean every county considered ‘high-cost’ will have this high of a limit. It varies based on the area and can be found here.
FHA Loan Limits
FHA loans base their limit on the conforming limit. However, the actual FHA limits vary by county. The FHA has two limits – the floor and the ceiling.
The floor is the lowest loan amount the FHA will guarantee in low-cost areas. The floor is always 65% of the conforming loan limit for the year. For the year 2018, the floor limit is $294,515. This is the maximum loan amount in low-cost areas. You can determine if you are in a low-cost area if the median home prices in your area are 15% less than the floor limit for the year. In other words, if the median home price is less than $250,337, you are in a low-cost area.
The FHA also has a high-cost area. The limit in these areas depends on the median home price. The maximum loan amount is then 115% of that median price. However, just as there is a floor, there is a ceiling. That ceiling is $679,650. This is the maximum loan amount in any high-cost area.
VA Loan Limits
The VA doesn’t set specific loan limits like the FHA does. They use the conforming mortgage limits as a guide, though. The VA guarantees 25% of the maximum conforming limit. In this case, they guarantee $113,275. This means a veteran may be able to secure a loan up to $453,100 since veterans can secure a loan up to 4 times their guarantee.
This doesn’t mean any veteran can secure a loan this high, though. It depends on the actual qualifying factors. In other words, you need enough income to cover the new mortgage payment, plus your existing debts. The VA allows a maximum debt ratio of 43% in order to qualify.
The national mortgage limits change each year. Generally, they increase, but there’s no rule stating they must increase each year. It depends on the HPI. Knowing the annual limits can help you determine if you fall under conforming loan limits or if you’ll need a jumbo (non-conforming) loan. If so, you’ll need lenders that write their own loans and keep them on their books. Staying within the conforming guidelines helps you make your loan process the simplest.