Biden administration raises 2022 FHA loan limits significantly

Borrowers with lower credit scores can qualify for higher loans

Borrowers with lower credit scores will soon be able to qualify for higher mortgage amounts. The FHA announced new loan limits for 2022, nearing $1 million in some high-cost areas. (iStock)

The Federal Housing Administration (FHA) increased its mortgage loan limits for single-family homes in 2022, which will allow borrowers with lower credit scores to take out a higher loan amount.

For most of the U.S., the loan limits for FHA mortgages will increase in 2022 to $420,680 for most counties, specifically in areas where 115% of the median home price is less than this limit. This equates to 65% of the newly-announced conforming loan limit of $647,200 for conventional loans.

Areas in which 115% of the median home price is above the new FHA mortgage limit are considered high-cost areas, and have a new loan limit ceiling of $970,800, or 150% of the national conforming loan limit.

"The increase in loan limits, commensurate with the increase in home prices, will allow qualified individuals and families to continue to access FHA-insured mortgages to achieve affordable home financing," said Lopa Kolluri, principal deputy assistant secretary for housing and FHA.

For homebuyers, this means they can qualify for higher-priced homes using an FHA loan, and homeowners can refinance their current mortgages for larger amounts. If you want to take advantage of higher loan limits through a new home purchase or refinance, visit Credible to find your personalized rate without affecting your credit score.


Surging home prices drive loan limit increase

This year’s increase in loan limits was driven by surging home price growth. The conforming loan limit, set by the Federal Housing Finance Agency (FHFA) for loans backed by Fannie Mae and Freddie Mac, increased by a record $98,950 this year. That new limit is then used to determine the limits for FHA loans. 

The FHFA uses its House Price Index (HPI) report annually to determine how much to raise conforming loan limits for conventional mortgages. This year, it found that home prices rose 18.05% annually from Q3 2020 to Q3 2021, according to its expanded-data HPI.

The loan limits for FHA-insured Home Equity Conversion Mortgage (HECM) – or reverse mortgages – will also increase. The FHA set a new limit of $970,800 for 2022, up from $822,375 last year. The agency's current HECM regulations don't allow the limit to vary by metropolitan statistical area or county; instead, the single HECM limit applies to all HECMs regardless of location.

If you are interested in seeing the new mortgage options available for your new home or for a refinance while interest rates are low, check out Credible to compare multiple mortgage lenders at once and choose the one with the best mortgage rate for you.


Borrowers with low credit scores can benefit from FHA loans

FHA loans have less stringent requirements on credit scores and can be more attractive to first-time buyers. 

"FHA loans are available with low down payment options and lower minimum credit score limits, but you’ll also have to pay mortgage insurance," Rocket Mortgage said in its blog. "The option of a low down payment and more lenient credit requirements can make FHA loans particularly attractive for first-time homebuyers, although you don’t have to be a first-time homebuyer in order to qualify."

Some FHA loan requirements include: 

  • A credit score of at least 580 for a 3.5% down payment
  • A credit score of 500 to 579 for a 10% down payment
  • A debt-to-income ratio of less than 43%

Borrowers must also be using the home as their primary residence, have a steady income and proof of employment, and they will be required to pay a mortgage insurance premium (MIP) in their monthly payment. 

If you are interested in seeing if you qualify for an FHA loan for your home purchase or refinance, or want to lower your monthly mortgage payment, contact Credible to speak to a home loan expert and get all of your questions answered.

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