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Adjustments to Federal Housing Administration (FHA) loan limits are specific to Metropolitan Statistical Areas (MSA) and counties and are updated annually. FHA loan limits are categorized by property type such as one-family, two-family, three-family, and four family, and can have higher loan limits for high-cost areas that can reach up-to $2,095,200 for FHA loans on 4-unit property types. The December 1st, 2022 update for FHA loans in 2023 can have an impact on mortgage applications in several ways.
Although mortgage rate adjustments in 2022 cooled rapidly increasing housing prices, the median sales price of a home had increased faster than expected. According to Federal Reserve Economic Data (FRED), the median sales price of a home increased over 45% from 2019 to 2022. This sudden increase in home prices tested FHA’s 2022 loan limits, specifically for potential homebuyers looking to take advantage of FHA’s 3.5% down payment program. The biggest impact of FHA’s 2023 loan limit increase is the ability for potential homebuyers to utilize an FHA loan over a Conventional loan, especially in major metropolitan areas that have higher home prices. FRED’s median sales price in Q3 was estimated at $454,900. Based on FHA’s 2022 loan limits, most non-high-cost areas would need more than a 3.5% down payment to purchase a home using an FHA loan. The adjusted 2023 FHA nationwide low- cost area loan limit increased to $472,030. This means that more homebuyers can use the FHA 3.5% down payment option without worrying about exceeding loan limits. Metro areas such as Dallas-Fort Worth have FHA loan limits of $531,300 for single family homes, while the Denver metro area has an FHA loan limit of $787,750. The 2023 FHA loan limit increase is a tremendous benefit to homebuyers in today’s current housing market. The ability to use an FHA program helps homebuyers with little or no credit history and a smaller down payment get a competitive FHA mortgage rate in comparison to similar qualifications with a conventional home loan.
While the 2023 FHA loan limit adjustment improves the likeliness of needing a lower down payment, the increase in loan limits also helps homeowners looking to take advantage of their home’s equity for debt consolidation, home improvements, or other home equity needs. As the Fed target rate increases, consumers might find the interest rate on the credit card balances they carry are also increasing. This can cause monthly credit card payments to increase and alter a household budget. The ability to access equity from a home is a great way to manage monthly budgets. However, with the previous FHA max loan amount, homeowners could be capped at the amount of home equity they could access. With the 2023 FHA loan limit increase, homeowners needing equity from their home have a greater opportunity to access more cash for home improvements or debt consolidation. Although mortgage rates are higher today than they were a year ago, mortgage rates on home equity and home improvement loans are typically lower than rates on credit cards and other forms of debt. Plus, the loan terms with FHA can make monthly payments on a consolidation loan lower than their current monthly debt obligations. Contact Us about FHA cash-out loans in Colorado and restrictions with FHA cash-out loans in Texas
All in all, FHA’s 2023 loan limit increase will have a positive impact on home loan applicants under any economic conditions we will experience in 2023. It is best to get familiar with the FHA county loan limits in your area to prepare for homeownership in 2023 or for homeowners looking to take advantage of their home’s equity. Remember, FHA rates are lower than conventional loan rates. However, talk to our state licensed loan officer to ensure you account for FHA’s MI requirements before you consider an FHA loan.
Buying a 4-unit property but using one as your primary residence is a great way to start or grow your investment property portfolio. With a minimum of 3.5% down payment, it is simple to start investing in real estate.
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