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Homebuyers with little saved up for a down payment can start shopping for pricier homes in most markets, with 2024 FHA loan limits set to increase to a minimum floor of $498,257 in affordable markets and a ceiling of as much as $1.72 million in high-cost states like Alaska and Hawaii.

The new loan limits, announced Tuesday by the Federal Housing Administration (FHA), are based on the 5.5 percent increase in home prices registered during the year ending Sept. 30 and align with similar increases approved for loans eligible for purchase by Fannie Mae and Freddie Mac.

Fannie and Freddie will be allowed to back mortgages of up to $766,550 in most parts of the country next year, their federal regulator announced seperately Tuesday, sparing more buyers from having to apply for a jumbo mortgage.

Because FHA loans allow homebuyers to make down payments of as little as 3.5 percent — and with many lenders offering programs to help cover even that expense — the program is particularly popular with first-time homebuyers.

In its annual report to Congress on the FHA program’s financial health this month, the Department of Housing and Urban Development (HUD) noted that of the 581,725 purchase mortgages FHA insured during the year ending Sept. 30, 82 percent went to first-time homebuyers.

Julia Gordon

“The statutory loan limit increases announced today reflect the continued rise in home prices seen throughout most of the nation in 2023,”  Federal Housing Commissioner Julia Gordon said in announcing the new limits. “The increases to FHA’s loan limits will enable homebuyers to use FHA’s low-down-payment financing to access homeownership at a time when a lack of affordability threatens to shut well qualified borrowers out of the market.”

FHA loan limits vary by county or Metropolitan Statistical Area (MSA), and are typically equal to 115 percent of the median home price for that market.

A minimum national loan limit floor allows buyers in low-cost markets to qualify for loans that exceed 115 percent of the median home price, while ceilings in high-cost markets prevent FHA from having to insure homes that are out of reach for most first-time homebuyers.

FHA 2024 loan limits, floors and ceilings

FHA’s 2024 minimum national loan limit floor for one-unit properties is $498,257, which is 65 percent of Fannie and Freddie’s conforming loan limit. That’s up $26,227 from the 2023 floor of $472,030.

The maximum loan limit ceiling in most high-cost areas is 150 percent of the conforming limit, or $1,149,825 for one-unit properties, a $60,525 increase from 2023.

The ceiling is even higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands to account for higher costs of construction — $1,724,725 for a single-family home, up from $1,633,950 in 2023. In those markets, the ceiling for FHA loans is $3,317,400 on four-unit properties.

FHA loans have proven to be an important tool for homebuyers coping with rising home prices driven by elevated interest rates and scarce inventory. But they’re not without drawbacks.

FHA borrowers typically pay upfront premiums of 1.75 percent, or about $5,050 for the average FHA purchase loan of $288,600. Annual premiums equal to 0.55 percent of the outstanding loan balance can add roughly $1,500 in recurring costs.

Although annual premiums diminish over time along with the loan balance, FHA borrowers have to keep paying insurance premiums until they pay off their loan — a sore point with industry groups that have called for the FHA to release borrowers from “life of loan” premium requirements once they’ve built up a 20 percent equity stake in their homes.

Having slashed annual mortgage insurance premiums on new FHA loans by 35 percent in March, total insurance in force is growing faster than reserves, and HUD officials are focused on navigating the next downturn.

In the fallout from the 2007-09 housing bust and Great Recession, the capital ratio of the FHA Mutual Mortgage Insurance fund dropped below the 2 percent statutory minimum from 2009 through 2014, and the program required a $1.69 billion bailout in 2013.

The Housing Policy Council, a mortgage industry trade association, issued a statement warning that the higher loan limits “exacerbate the affordability crisis and increase the housing finance system’s over reliance on government backing.”

Noting that Fannie and Freddie’s baseline conforming loan limit is more than 10 times the 2022 median household income of $74,580, the group pointed to a 2013 proposal by the Obama administration to wind down Fannie Mae and Freddie Mac and “put private capital at the center of the housing finance system.”

“The current housing finance system, where the government guarantees more than 80 percent of all mortgages through Fannie Mae and Freddie Mac and FHA, is unsustainable,” the Obama White House said at the time. “A reformed system must have a limited government role, encourage a return of private capital, and put the risk and rewards associated with mortgage lending in the hands of private actors, not the taxpayers.”

Editor’s note: This story has been updated to include comments from the Housing Policy Council, a mortgage industry trade association.

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Email Matt Carter

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