The maximum FHA loan size for California has been increased for 2018. Starting in January, the FHA loan limits for California will range from $294,515 to $679,650, for a single-family home. These maximum amounts vary by county and are generally the same across metro areas.
Higher Maximum FHA Loan Size in California
On December 7, the Department of Housing and Urban Development (HUD) announced that it would increase FHA loan limits for most counties across the country in 2018. This change was made in response to rising home values.
In many parts of the country, house prices rose steadily during 2017, prompting housing officials to increase the maximum FHA loan amount for California and other states in 2018.
According to a related news release from HUD:
“In high-cost areas of the country, FHA’s loan limit ceiling will increase to $679,650 from $636,150. FHA will also increase its floor to $294,515 from $275,665. Additionally, the National Mortgage Limit for FHA-insured Home Equity Conversion Mortgages (HECMs), or reverse mortgages, will increase to $679,650 from $636,150.”
Due to variations in median home prices across California, loan limits span the entire spectrum from floor to ceiling. In lower-priced housing markets, the max FHA loan amount in 2018 is $294,515, for a single-family property. In higher-price areas, the revised limit will be $679,650.
High-cost areas at the “ceiling” include:
- San Francisco Bay Area, including Silicon Valley
- Los Angeles metro area
- Napa County
- Santa Cruz County
In these higher priced markets, the FHA loan limit for 2018 will be $679,650.
These new maximum amounts will apply to loans with case numbers assigned on or after January 1, 2018. They will remain in effect through December 31, at which time they will be reviewed again.
A Response to Rising Home Values
As mentioned above, these maximum FHA amounts are based on home prices. That’s why they vary from one area to the next, in many cases. The National Housing Act (NHA) mandates that the FHA set its loan limits at 115% of the area median home price, subject to a national minimum “floor” and maximum ceiling limit. The NHA establishes the floor and ceiling at 65% and 150%, respectively, of the conforming limit.
So when house values rise significantly over the course of a year, FHA and conforming loan limits tend to rise as well. That’s what happened last year, from 2016 to 2017, and it’s happening again as we move into 2018.
According to Zillow, the median home price for the state of California rose to $512,800 in November 2017. That marked an increase of around 7% from the same month a year earlier. So it’s no surprise to see the maximum FHA loan size for California going up in 2018.
Down Payment to Remain at 3.5% for Now
The fact that HUD has increased the max FHA loan amount for California is good news for borrowers who want to use this program. It gives borrowers a broader range to work with, in terms of home prices.
Here’s some more good news. The relatively low 3.5% down payment that draws people to this program will likely remain in effect throughout 2018. HUD officials have not even hinted at raising the minimum required investment anytime soon.
Borrowers who wish to use an FHA loan to buy a home in California must make a down payment equaling 3.5% of the purchase price or the appraised home value (whichever is less).
Additionally, HUD allows borrowers to apply gift money from a third party toward their down payment. So there’s a lot of flexibility built into this program. That’s why it remains such a popular financing option, particularly among first-time buyers with limited funds.