Now let's talk about FHA loan limits and specifically the changes that happened at the beginning of 2020, that changed loan limits. They actually increased quite a bit. So what this is going to help you do is figure out exactly how much you can borrow on a new loan if you're using an FHA loan program.
So first let's talk about why do we have an increase in the loan limit? It's because as homes increase in their loan limit. FHA has to keep up and increase its loan limit. That way people can borrow more money for homes as the home value increases across the US.
So for most of the country, that's going to be $331, 760. $331,760 is the max loan limit for most counties across the US. That's a $17,000 increase from 20 nineteens, $314,827. So you can see as home values increased the amount that you can borrow now increases as well.
Now, this is still pretty low for some areas in the nation. So we can compare that to Fannie Mae and Freddie Mac on conventional loans. So these would be conventional of $510,400.
So you can see if you want to qualify for more money. You might have to flip to a conventional loan program and see if you can qualify for conventional to be able to get a higher loan.
So basically what happens is FHA is required by law. The required by law to set the single-family loan limit of 115% of median home prices.
So whatever the median home price is, they're going to take 115%, and that's now the new max loan limit. But that doesn't work for all counties. FHA recognizes that not all counties are the same. For instance, you have high-cost counties and there are about 70. What are classified as high costs to counties.
These are where home values are a lot more expensive than in most of the US so areas in California, or you have areas like Nashville, those areas are more expensive and are high-cost areas.
So what FHA does is they take 150% instead of 115% of the median home value. So most of these areas have a $765,600 limit on the max loan that you can get from FHA.
So now let's talk about how do we calculate the purchase price because we know the loan amount. But how do we actually figure out what our purchase price is?
So the way that we do that is some reverse math. So you're going to take your loan limit and then you'll divide that by however much the evaluation of your loan is. Your loan to value ratio is basically how much your loan is compared to the value of the home. So for instance, FHA has a minimum 3.5% down payment. So the loan-to-value ratio is %96.5. So if we take our loan limit and divide it by 96.5%, that's going to give us our max purchase price.
So for instance, let's run off of this example up here at $331,760. If I take $331,760 divided by 0.965. That gives me $343,792 as the max purchase price. Now, if you want to go higher than that limit, then you can put more money down to make up the difference.
So now, how do you actually look these up? You can go to FHA website for you to actually be able to find the county that you're searching for or you're searching for a home in and find exactly what the loan limit is. Then do some reverse math to figure out what your max purchase price is. So you can shop with confidence.
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