Understanding the New GSE and FHA Loan Limits
Applying for a mortgage is both scary and exciting. You might spend some time working on your credit before you apply to make sure you get the best rate. The Federal Housing Administration (FHA) and a Government-Sponsored Enterprise (GSE) loan rely less on your credit score and are often easier to obtain. These loans come from government agencies that want to help you buy a home you can afford. Trust Thrive Lending Group to help you understand these loans and the new limits they have.
Before looking at the loan limits, consider how GSE and FHA loans differ. GSE loans are government-sponsored loans. Private lenders help buyers find funds they can use to buy homes. The government provides some benefits to those lenders and often works with them when home prices are down. A GSE organization can also buy a mortgage from another lender. When this happens, you need to follow the new lender’s rules. They may reduce the grace period before your loan is due or how many payments you can miss before they foreclose.
One thing to keep in mind is that a GSE will not give you the money for your home. The organization will guarantee the loan you get from another lender. If you do not pay the lender, the GSE will step in and pay off the loan, but they can then evict you from your home. The nice thing about a GSE loan is that many organizations will let you borrow more than a traditional bank would. You can also qualify for a loan if you have a low income. Some GSE organizations even work with those denied by other programs for first-time homebuyers.
The Federal Housing Administration is a government department also known as the FHA. Unlike other loans that require a high credit score and good credit history, FHA loans often go to people with some credit issues. More than 80% of buyers who qualify for FHA loans are first-time buyers. You can choose a 15-year or 30-year mortgage. While a 30-year mortgage offers lower monthly payments, you will spend twice as long paying off the money you borrowed. The FHA can also help you refinance if you already have a mortgage but think you qualify for a lower interest rate.
With an FHA loan, you must have and pay for two different types of insurance. The first is upfront mortgage insurance, which is 1.75% of your total loan. You will also pay your annual mortgage insurance. The cost of this varies due to factors such as how much coverage you need and the deductible you pick. To qualify for an FHA home loan, you must show that you had a consistent income source for the last two years and that you will live in the home you buy. The FHA requires a down payment of 10% if you have a lower score and 3.5% if you have a credit score of 580 or higher.
New Loan Limits
To cope with the rising cost of living in the United States, both the FHA and GSE organizations increased the loan limits for borrowers. The maximum loan amount for FHA borrowers is $420,680 if you live in an area with a low cost of living. The amount you can get will rise based on the average cost of living where you plan to buy a home and live. You can borrow a maximum of $970,800 if you live in California or another high cost of living area. The FHA also increased the limit to $1,456,200 for those who live in Alaska and Guam as well as Hawaii and the Virgin Islands.
You also have the right to borrow more if you purchase a building with multiple units such as a duplex. This allows you to live on one side while you fix up the opposite side or rent the other half to help cover your mortgage. The FHA does not guarantee that you can borrow the maximum amount though. It will still look at your average income to ensure you can handle the monthly payments.
GSE loans use the same limits that FHA loans do. With a GSE loan, you can borrow between 115% and 150% of the median home price in your area. If you live in an area with a higher cost of living, you can borrow up to $970.800, but the amount will drop to $420,600 if you live in an area with a more affordable cost of living. These amounts relate to single-family homes only. Borrowers planning to purchase homes with two or more units can borrow a larger amount.
How Much Can You Borrow?
At Thrive Lending Group, you will find a helpful mortgage quiz that gives you an idea of how much you can borrow. While GSE and FHA loans have maximum amounts, not all borrowers qualify for the total amount. Your income and debt to credit ratio have a major impact on the money you receive. You also receive a different amount when you have a co-signer or have changes to your income after you apply. If you plan to buy a home in the next year, it is helpful to work on getting your credit score up and removing negative marks from your credit report.
Get Help Paying for Your Home
Very few people have enough money in the bank to pay for a home in cash. That is why mortgage providers help people without enough funds to buy homes every day. With a pre-approval letter, you show that you qualify for a home loan and can start working with a real estate professional. At Thrive Lending Group in Garden Grove, CA, we can help you learn more about your mortgage options. We will also explain what you need to do to get a low-interest rate. Contact us as soon as you decide to buy a home to check the current GSE and FHA loan limits for 2022.