FHA Loan Limits

The FHA was formed in 1934 to help people mired in the Depression era economics buy a home.  Since those days, the Agency has always focused its efforts on assisting Americans with modest incomes. 

Their method of operation is to purchase loans that meet FHA guidelines from commercial lenders and to insure them against default. In keeping with the Agency goals there has always been a limit on the size of the loan the FHA will insure – these loans are called conventional or conforming loans.

The FHA loan cap is adjusted annually varies from region to region.  For both 2006 and 2007, the largest loan that was and is eligible for FHA participation is $362,790, and that is for the areas of the country with the costliest homes.  For information on FHA loan limits in your area, go here and choose your state. 

The loan cap figure is derived from the median cost of a home in any given metropolitan statistical area (MSA).  Thus while the biggest FHA loan you can get for a single family home in the San Francisco area is $362,790; in Springfield Missouri the largest loan available under FHA’s rules is $200,160.

Loans that exceed the FHA caps are called ‘jumbo loans’.  Any mortgages that are for higher sums than the FHA caps permit must be acquired solely through standard banking sources working without FHA partnership.  For that reason, the interest rates on jumbo loans are generally higher than for conforming loans.

Conventional loans are also available without FHA involvement.  By comparison, however, the FHA loan is likely going to have a lower interest rate than a conventional loan without FHA involvement.  Credit requirements will be less cut-and-dried; the FHA loan officer is going to listen to your explanations and take them into account.

If your credit problems have been recent and you are a candidate for a “subprime” loan, the FHA loan is still a better choice.  It will not have risky adjustable rates and will not carry a prepayment penalty as most commercial subprime loans do.  If your credit improves and you want to FHA refinance your loan in a few years to obtain a lower interest rate, you won’t be paying thousands of dollars in penalties to do so – if you have an FHA loan.