FHA Loan Limits Are Rising in 2022

Interested in an FHA loan? Here's what you need to know about next year's limits.

It's hardly a secret that home prices have been soaring. We can thank limited supply and high buyer demand for that.

Not surprisingly, conforming loan limits will increase in 2022 to accommodate today's higher home values. FHA loan limits will be rising as well.

FHA loans are a great option for borrowers who want to buy a home but have limited funds to put down at closing. These mortgages allow borrowers to put down as little as 3.5%, and they also come with lower credit score requirements than conventional loans.

Right now, FHA loan limits in most of the country are $356,360. In high-cost areas, the limit is $822,375. And in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the limit is $1,233,550. All of these figures apply to single-family properties.

Come 2022, FHA loan limits will increase to the following levels:

• $420,680 for most of the country
• $970,800 for high-cost areas
• $1,456,200 for Alaska, Hawaii, Guam, and the U.S. Virgin Islands

Again, these limits apply to single-family homes. It's possible to take out an FHA loan for a multi-unit home, and those limits are higher. Individual buyers generally look at single-family homes when applying for a mortgage, whereas those buying a property as an investment may be interested in multi-unit homes. To be clear, you can only take out an FHA loan for a home you intend to occupy yourself. But you can buy a multi-unit home, occupy one unit, and rent out the others.

Should you take out an FHA loan?

The upside of getting an FHA loan is that you don't need to bring a high down payment to the table. With home prices being so high these days, coming up with 10% or more -- which many conventional lenders require -- can be challenging. An FHA loan offers more flexibility.

Also, to get a conventional mortgage, you need a minimum credit score of 620. But you can take out an FHA loan with a score as low as 500 if you're able to make a 10% down payment. For a lower down payment, you'll need a minimum credit score of 580.

That said, there's a downside to borrowing via an FHA loan. These mortgages charge an upfront premium of 1.75% of your loan amount. They also charge ongoing mortgage insurance premiums of 0.45% to 1.05%, leaving you on the hook for extra fees.

Furthermore, FHA loans require you to live in the home you're borrowing money to finance. If your goal is to purchase an investment property that you don't occupy, then you'll need to figure out another way to finance it.

Do your research

It makes sense for FHA loan limits to rise in 2022 in the wake of increasing home values. If you're interested in buying a home in the coming year, it pays to see if an FHA loan is right for you. You may find that it's easier for you to qualify for an FHA loan than a conventional loan, and that the aforementioned limits make it more than possible to purchase a home in your target area.

If you're hoping to get an FHA loan, shop around with different FHA lenders to see what rates they have to offer. While FHA loan limits are universal, each lender sets its own rates, so it pays to do some research before moving forward.