How Much House Can I Afford With an FHA Loan?
Find out how much you may be able to borrow using an FHA loan by considering factors like your credit, debt-to-income, and savings.
You’re getting ready to start shopping for a house, and you’re pretty certain you want to go with an FHA loan. The Federal Housing Administration backs loans with less strict credit requirements and low down payment options to help families become homeowners.
But maybe you’re a little unclear on what the different loan guidelines mean. How much house can you afford if you’re getting an FHA loan? Here are the questions you need to ask yourself.
Where do you live?
The FHA sets loan limits or maximum lending amounts. Borrowing limits for FHA loans aren’t the same across the country; they’re based on your county. This allows buyers who live in more expensive housing markets to still get a mortgage on a house.
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The FHA loan limit for most counties in the United States is $498,257, but in more expensive areas, it can go as high as $1,149,825.
For example, someone who lives in Cuyahoga County, Ohio, can borrow up to $498,257, while a buyer in Delaware County, Ohio can borrow up to $546,250 with an FHA loan. Yet the cap for someone in Edwards, Colorado (in Eagle County, also the home of Avon and Vail), is $1,149,825.
What role do escrow accounts play in FHA loans?
An FHA loan requires borrowers to escrow their homeowner’s insurance and property taxes. The loan servicer will collect money to pay your insurance and taxes each month when you pay your mortgage, and then the servicer will pay the insurance and taxes on your behalf when they are due.
Homeowners insurance rates are influenced by where you live and the value of your home, which will impact your monthly mortgage payment. In addition to your mortgage loan interest and principal, lenders also collect money each month that they put into escrow to pay your homeowners insurance.
The average homeowners insurance is 2,377 a year, so that would add roughly $200 per month to your mortgage payment. But if you lived in Louisiana, the most expensive state for homeowners insurance at an average of $7,809 annually, your monthly cost might be closer to $650.
Property taxes also vary depending on your location, the size of your home and its value, and any special levies. Property taxes average $4,112 per year nationwide, but there can be a wide swing — from roughly $978 a year in Alabama to $9,572 a year in New Jersey. This would add as little as $82 a month to upwards of $798 a month to your monthly payment.
Lindsey Chaney, an experienced agent in Troy, Ohio who works with 69% more single-family homes than other agents in her area, says taxes can vary significantly in her area. She points out that “while buyers can go to Montgomery County and find a less-expensive home, they’re going to be paying double the taxes.”
She advises having a loan officer run an estimate based on your home budget when deciding where to look for homes.
