The Department of Housing and Urban Development (HUD) announced the 2016 maximum loan limits for the Federal Housing Administration (FHA) yesterday. While the maximum loan limit will not change, limits will rise in 188 counties around the country.
Every year, HUD establishes the maximum mortgage amounts which the FHA can insure. HUD sets limits based on the median home price at the local level. However, the local limit is restricted to a maximum and minimum level. The maximum FHA limit is 115 percent of the local median price up to 150 percent of the national conforming loan limit of $417,000. No county can has a limit less than 65 percent of the conforming limit or $271,050. A limit is not reduced if the local median price declines.
For calendar year 2016, 188 counties will see an increase in their FHA loan limit. While many of these areas are the same that received increases in their conforming loan limits, many are new. Areas concentrated in Colorado, California, Seattle, and North Dakota will see some of the largest increases, but Catron County, NM will jump $115,350 while Tuscaloosa, AL will rise $60,150 (see table at the end for a full list). No county will experience a decline in its limit.
The number of counties with limits at the floor will fall by 21 from 2015 to 2016 to 2,597, while the number of markets at the $625,500 maximum will increase by one to 77. The number of markets in between the minimum and maximum limits will rise by 20 to 560.
The limits for many counties will not change in 2016 either because their median price has not eclipsed a previous high mark and has been “frozen” or 115 percent of the 2015 local median price was below $271,050. However, based on the FHA’s methodology a 2.5 percent increase in the local median price for 2016 would move 115 of these markets above their current limits. Of these counties, one is below the $271,050 threshold and has not seen an increase in its median price while an additional seven had their medians rise in 2015, but were still below the $271,050 mark. A 5.0 percent increase would draw an additional 39 counties over their current limits. Atlanta, Baltimore, Columbus, Philadelphia, Albany, Kansas City, and Reno would all benefit from such an increase. This table does not include the 188 markets where limits rose in 2016 and may rise as well with price gains. NAR Research is currently forecasting 4.6 percent growth in the national median home price in 2016.
With mortgage rates set to rise in the coming quarters, access to credit still limited in the private sector, and FHA terms and pricing more favorable to many first-time and marginal borrowers, changes to these local limits are gaining importance. However, limited supply remains a stout headwind to entry level homebuyers.