FHA Loans can be used for a variety of circumstances in today’s market. FHA loan limits in certain, higher cost areas of the country are actually higher than those for conventional loans (in some cases, much higher). They have become the most popular loan type in America today and for good reason. FHA Mortgage Loans allow for a much higher Loan-to-Value (LTV) when compared to conventional loans and FHA loans carry very low interest rates over a broad range of credit profiles.
FHA loan limits vary greatly over different areas of the country. In most counties, the FHA maximum loan amount is $271,050. This limit is impacted by the average median income for that area. In other, higher cost areas of the country, the loan limits can be higher and in some cases, substantially higher. The maximum FHA home loan amount in any area right now is $729,750.
FHA that are over $417,000 are considered “FHA Jumbo Loans” and carry very similar terms and interest rates as lower FHA mortgage amounts. FHA Jumbo Mortgages allow a home buyer to purchase a home and finance up to 96.5% of the purchase price. Other loan programs do not allow for such a high LTV in today’s lending climate. This is one of the reasons that FHA mortgage loans are so popular today.
In addition to the FHA Maximum Loan Amount for a give area, FHA home loans also carry certain Debt-to-Income Ratios (DTI) that determine how much of a loan amount a borrower can afford for their particular circumstances. Current FHA maximum DTI Ratios are 31% for the housing ratio (meaning the new house payment should not be more than 33% of the total documented income) and 43% for the total expense ratio (meaning the new total monthly expenses should not be more than 43% of the borrowers documented income). These ratios can be exceeded with compensating factors, such as an excellent credit score and payment history.