Federal Housing Administration (FHA) announced higher loan limits for 2021. The guidelines apply to the administration's Single Family Title II forward and Home Equity Conversion (reverse) Mortgage insurance programs.
The rise in loan limits correlates with nationwide home price appreciation in 2020, according to a press release from FHA, which factors property prices when determining annual limits. The administration outlines the specifics in a Mortgagee Letter on 2021 Forward Mortgage Limits [1] as well as a Mortgagee Letter on 2021 Home Equity Conversion Mortgage (HECM) Limits. [2]
The new loan limits are effective for FHA loans assigned on or after January 1, 2021.
The National Housing Act requires FHA to set single-family forward loan limits at 115% of median home prices, regionally, explains FHA.
Via press release, FHA Commissioner Dana Wade commented on the 2021 loan limits.
"FHA has seen consistent increases in loan limits during the past few years, putting it in a position to serve a segment of borrowers that may be better served by the conventional market. FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375? This is a question for Congress and the taxpayers who stand behind FHA to answer."
The announcement comes on the heels of FHFA's loan limit increase, published last week.
The FHFA’s limits dictate Fannie Mae and Freddie Mac lending and also are used to define the loan limits for the HUD/FHA program.
The National Association of Realtors last week released a statement on the FHFA's action, saying, “With home prices setting records in many U.S. markets," the organization "is pleased to see the FHFA raise its national conforming loan limits for 2021."
In its November 13 Annual Report to Congress covering the financial status of FHA’s Mutual Mortgage Insurance Fund for the fiscal year 2020, FHA provides recommendations for addressing the risks and flaws in current FHA loan limit calculations. However, due to the "statutory nature" of these provisions, HUD says it cannot fully address the concerns without Congressional action.
According to HUD, "due to robust increases in median housing prices and required changes to FHA’s floor and ceiling limits, which are tied to the Federal Housing Finance Agency (FHFA)’s increase in the conventional mortgage loan limit for 2021, the maximum loan limits for FHA forward mortgages will rise in 3,108 counties.
"In 125 counties, FHA’s loan limits will remain unchanged.
Regional loan limits are calculated according to home values in the respective area.
"It has been HUD’s long-standing practice to utilize the highest median price point for any year since the enactment of the Housing and Economic Recovery Act (HERA)," according to the press release.
For the full press release on FHA loan limits, to find a complete list of FHA loan limits, areas at the FHA ceiling, areas between the floor and the ceiling, as well as a list of areas with loan limit increases, visit FHA's Loan Limits Page [3].
Read more on the FHFA loan limits announced last week, here [4].