FHA Cap Limits
- The U.S. Federal Housing Administration originated in 1934 to improve the economic effects of the Great Depression by offering a home mortgage assistance program. Today, the U.S. Department of Housing and Urban Development administers the program. Through HUD, homebuyers have the option of using FHA financing to purchase a home. In effect, mortgage lenders can offer these loans at lower rates because the FHA insures each loan and guarantees payment if a buyer defaults on a mortgage. FHA cap limits determine the maximum loan amounts permitted for home purchases.
- FHA adjusts loan caps yearly to coincide with economic market changes. Cap limits vary from region to region both inside and outside state lines. The set amount for each cap limit hinges on the median cost of homes within different regions. As a result, an area with high property values will have a higher FHA cap limit than one with low property values. Home buyers needing loan amounts that exceed the FHA cap limits must obtain their mortgages through other means. However, government-approved financing, such as that offered through Fannie Mae and Freddie Mac, is still available through conventional loan financing methods.
- The FHA adjusts cap limits annually to stimulate economic market activity. The agency makes cap limit adjustments county-by-county throughout the United States. The higher the cap limits, the more people take advantage of FHA financing rates. In areas with high median home cost, such as Connecticut, Virginia and Colorado, high cap limits help strengthen regional economic markets. In response to the economic downturn that occurred between 2008 and 2010, there were cap limit increases across the board, according to the FHA Home Loans Refinancing resource site.
- When calculating cap limits, the FHA uses national floor limits and ceiling limits to determine individual county limits. The FHA divides loan types into two categories that represent the high-cost areas and the low-cost areas. From there, the agency calculates cap limits according to home size in terms of one-unit, two-unit, three-unit and four-unit properties. As of 2011, one-unit properties in high-cost areas have a ceiling cap limit of $729,750 per loan amount, according to DS News, a mortgage industry news website. Maximum caps for low-cost areas determine the national guideline for floor limits. As of 2011, one-unit properties in low-cost areas have a floor cap limit of $271,050 per loan amount.
