Written by the Simply Approved Mortgages editorial team
Reviewed for program accuracy by our Simply Approved Mortgages underwriting desk — Licensed mortgage originators (NMLS) — Colorado & Florida. We summarize published federal program rules; we do not set them. This article is educational and is not a quote, approval, or commitment to lend.
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FHA loan limits and mortgage insurance both play key roles in the overall cost of your FHA-insured mortgage. Understanding how these factors interact can help you budget for your home purchase or refinance. FHA loan limits define the maximum amount you can borrow for an FHA loan in a specific county, while FHA mortgage insurance helps protect the lender against loss if you default. Specifically, the annual changes to FHA loan limits directly influence the potential size of your mortgage and, consequently, the dollar amount of your monthly mortgage insurance payments.
Understanding FHA Loan Limits
FHA loan limits establish the maximum loan amount that the Federal Housing Administration (FHA) will insure in a particular geographic area. These limits vary by county and are updated annually by the Department of Housing and Urban Development (HUD), typically around the beginning of each calendar year. These adjustments reflect changes in local housing market conditions; our guide on how HUD sets FHA loan limits explains the formula.
For example, for calendar year 2024, the nationwide "floor" for a one-unit property was set at $498,257, and the "ceiling" at $1,149,825 in high-cost areas, according to HUD Mortgagee Letter 2023-18. Your FHA loan amount cannot exceed the limit for your county, and it also cannot exceed the lesser of the home's appraised value or purchase price, plus any Upfront Mortgage Insurance Premium (UFMIP). You can look up the specific limits for your area on the official HUD FHA Mortgage Limits page.
FHA Mortgage Insurance Premiums Explained
FHA loans require two types of mortgage insurance premiums: an Upfront Mortgage Insurance Premium (UFMIP) and an annual Mortgage Insurance Premium (MIP). These premiums are a cost of the FHA loan, separate from your interest rate, and are in place to cover potential losses for the FHA.
The UFMIP is a one-time fee, typically 1.75% of the loan amount, according to HUD Handbook 4000.1, Section II.A.1.b.i. This amount is usually financed into your loan, increasing your total loan balance but not requiring an out-of-pocket payment at closing. The annual MIP is paid monthly as part of your mortgage payment, and its duration depends on your loan-to-value (LTV) and loan term. Learn more about FHA mortgage insurance on our dedicated FHA loans page.
How FHA Loan Limits Affect Annual MIP Costs
The cost of your annual MIP depends on several factors, including your loan's original principal balance, loan-to-value (LTV) ratio, and loan term. The higher your loan amount (up to the county limit), the higher your annual MIP will be in dollar terms, even if the percentage rate remains the same.
According to HUD Mortgagee Letter 2023-05, for loan terms longer than 15 years: * If your original LTV is 95% or less, the annual MIP is 0.50% of the loan amount. * If your original LTV is greater than 95%, the annual MIP is 0.55% of the loan amount.
For loan terms of 15 years or less: * If your original LTV is 90% or less, the annual MIP is 0.15% of the loan amount. * If your original LTV is greater than 90%, the annual MIP is 0.40% of the loan amount.
For example, if you secure an FHA loan for $400,000 with a term longer than 15 years and an original LTV greater than 95%, your annual MIP would be 0.55% of $400,000, or about $2,200 per year in this example. You can estimate your own premium with our FHA MIP calculator. This payment is based on the initial loan balance. While the monthly dollar amount changes, the annual MIP factor stays the same based on the loan parameters.
You can learn more about these costs and how they compare to other options on our FHA vs. Conventional loans page.
FHA vs. Conventional Loans: A Cost Comparison
When considering a mortgage, it's helpful to understand how FHA loans compare to conventional loans, especially regarding mortgage insurance. FHA loans generally require mortgage insurance for the life of the loan if your original LTV was greater than 90%, or for at least 11 years if your original LTV was 90% or less, according to HUD Handbook 4000.1, Section II.A.1.b.i. With a conventional loan, private mortgage insurance (PMI) can typically be canceled once you reach 20% equity in your home.
While FHA loans often have more flexible credit score requirements, such as a minimum credit score of 580 for the lowest down payment, as outlined in HUD Handbook 4000.1, Section II.A.1.a.i, the ongoing MIP costs can sometimes make a conventional loan more affordable in the long run, if you qualify. For example, a 2017 study by the Consumer Financial Protection Bureau (CFPB) on mortgage costs noted that while FHA loans can be accessible, borrowers should factor in the total cost of mortgage insurance over time when comparing loan types. Exploring both options can help you determine the best fit for your financial situation. Our team at Simply Approved Mortgages can help you compare these options. Utilize our mortgage calculators to estimate potential payments.
What FHA Loan Limits Mean for Your Eligibility
Your eligibility for an FHA loan depends on meeting several criteria, including credit score, debt-to-income (DTI) ratio, and the property meeting FHA standards. The loan amount you qualify for will be limited by the FHA county loan limit for the property's location.
FHA loan limits cap the base loan amount, not the home's price, so you can still use an FHA loan on a home priced above your county's limit by borrowing up to that limit and paying the difference as a larger down payment, subject to lender underwriting and approval (HUD Handbook 4000.1). If your down payment ends up large, it is also worth comparing a conventional loan. Additionally, for purchase loans, you will generally need a minimum down payment of 3.5% of the home's purchase price, according to HUD Handbook 4000.1, Section II.A.2.a.i. Our pre-qualification process can help you understand your potential eligibility without a full application. Always remember, all loans are subject to lender underwriting and approval.
Refinancing Options and FHA Loan Limits
Existing FHA loan holders might consider refinancing options to potentially lower their interest rate or change loan terms. An FHA Streamline Refinance allows for refinancing an existing FHA loan with reduced documentation, and often does not require a new appraisal. However, the new loan amount, even for a refinance, must still adhere to the current FHA loan limits for your county. If you're looking to tap into your home equity, an FHA cash-out refinance is another option, also bound by these limits. Understanding the applicable FHA loan limits is crucial whether you are purchasing a new home or refinancing an existing one.
Sources
These government publications are cited for FHA program background and general consumer education. FHA program rules described here are published by HUD and are not underwriting decisions; all loans remain subject to lender underwriting and approval. Simply Approved Mortgages LLC (NMLS #2620881) is a mortgage broker and is not HUD, FHA, or the CFPB, and is not affiliated with or endorsed by any government agency.
