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Last week, we covered how conforming loan limits will be changing in the new year. But just as the Federal Housing Finance Agency changes its guidelines annually, so do other entities -- namely, the Department of Housing and Urban Development. In fact, just a few days after FHFA's announcement, HUD came out with similar news: Its loan limits are changing for 2021, too.
We'll get into the details later, but the gist is that FHA loans are going up about $24,000 on the low end and around $57,000 in higher-cost markets (at least for one-unit properties). Obviously, this could open some doors for investors, particularly those looking to stay competitive in today's ultra-competitive (and ever-costly) housing market.
Are you planning some new investments in 2021? Think an FHA loan may be the way to finance them? Here's what you need to know.
What are the new limits?
FHA loan limits technically vary by county. Those limits are higher in areas with more expensive housing costs and lower -- also called the baseline amount -- in the majority of places across the country.
Under the new limits, here's what those lower and upper thresholds will look like for single-family homes:
- Baseline limit: $356,362 (up from $331,760 in 2020)
- High-cost limit: $822,375 (up from $765,600)
Some counties fall somewhere in the middle, with limits of $403,650, $437,000, $596,850, and more. These are just for single-family homes, though. Remember: FHA loans can only be used for primary residences (at least for the first year), so if you're planning to use one of these loans for an investment property, you'll need to think long-term here.
Another option is to live in one of the units of a multi-unit property while renting out the others (sometimes called house hacking). With FHA loans, you can finance two-, three-, and four-unit homes, as long as one of the units is your primary residence.
If this is a strategy you might consider, here are the loan limits you'll need to keep in mind:
- Two-unit properties: $456,275 to $1,053,000
- Three-family properties: $551,500 to $1,272,750
- Four-family properties: $685,400 to $1,581,750
Altogether, FHA loan limits are increasing in 3,108 counties in the U.S. Just 125 counties will see their limits hold steady.
More FHA options
FHA does insure loans on larger properties, too, but these don't have set limits. FHA loans can be used to purchase multifamily rental properties of five units or more, healthcare facilities, cooperative housing projects, elderly housing developments, and more. The limits on these vary by loan program and are typically calculated as a percentage of the sales price.
The bottom line
If you're investing in new properties in 2021, take note of these new FHA loan limits. With home prices predicted to jump another 2.1%, they could help you stay competitive while also giving you access to affordable financing and low interest rates.
Looking for other financing options? Use this guide.
The "Unfair Advantages" of Real Estate Just Got a Whole Lot Better
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