Ninety-six percent of counties in the country will start 2021 with higher Federal Housing Administration (FHA) loan limits than 2020. Home price appreciation moved full steam ahead in 2020—despite a pandemic—as the housing market was the surprise star of the year. Rising FHA loan limits are particularly important in a rising home price environment as they help some Americans secure a mortgage by offering buyers lower down payment and credit score options.
- Homes priced below the FHA loan limit sell nearly 2-to-1 compared with those above, according to Zonda data.
- The FHA sets a ceiling and floor each year for the loan limits based on median home prices. The new ceiling of $822,375 is 7.4% higher than the $765,600 from last year. Metros like Los Angeles, New York, and San Francisco fall under that umbrella. The new floor of $356,362 is seen in places like Tampa and Orlando, Florida, and Houston. Over 80% of all counties received the minimum limit.
- Among major markets, the new loan limits increased the most on a percentage basis in Boise, Idaho; Phoenix; and Salt Lake City, up 13%, 11%, and 9%, respectively. The increase closely mirrors the runup in prices in these local markets due to rapidly rising demand.
- Austin, Texas, one of the hottest housing markets in the country, saw a muted 2.8% increase in the loan limit from 2020 from $404,800 to $416,300.
"The COVID-19 pandemic helped drive the housing market to the highest level in over a decade, and the resulting strength is accompanied by rapid home price appreciation,” says Tim Sullivan, senior managing principal at Zonda. “The FHA loan limits were bound to increase in order to better reflect the market.”
New-home communities in Maricopa County in Phoenix are the big winners under the new 2021 criteria, with an additional 50 that fall within the updated $368,000 limit. Phoenix was also the biggest beneficiary last year when the FHA loan limit moved from $314,827 to $331,760. Houston, a market that fared well despite the double whammy of COVID-19 and depressed oil prices, has a collective 53 new-home communities that now fall within the new $356,362 limit in just two counties alone.
Other significant gainers from the higher limits include top counties in Riverside/San Bernardino, California; Orlando; and Charlotte, North Carolina.
The change in the FHA floor and ceiling loan limits match the 7.4% increase in conforming loans announced by the Federal Housing Finance Agency (FHFA) late last month. While higher limits from both organizations have been slow to keep pace with home price appreciation in recent years, the moves by both the FHFA and FHA are positive for buyers looking to enter today’s housing market using financing.
