FHA loan limits restored to higher levels

[Dec 13, 2011.]

 

While FHA loan limits were lowered in expensive housing markets at the beginning of October, on November 18 Congress voted to restore higher loan limits. In areas with lower cost housing, this move will not have an impact, but in places such as New York City, Washington, D.C., Hawaii and San Francisco, buyers and homeowners will be able to use an FHA loan to borrow as much as $729,750. According to The Wall Street Journal, about 600 counties are impacted by this change.

FHA mortgage impact

FHA mortgage loans are insured by the government, allowing lenders protection against borrower defaults. According to Bloomberg, approximately one-third of all mortgages in the U.S. are now guaranteed by the FHA.

In areas with expensive costs, homeowners who wanted to refinance a mortgage above $625,000 (the previous FHA loan limit in high cost markets) and homebuyers were forced to take out a jumbo loan, which typically has higher mortgage rates and tighter credit requirements, as well as a down payment or home equity of at least 20 percent. Now, borrowers in those high cost real estate markets will be allowed to borrow up to $729,750 with a down payment or home equity of just 3.5 percent with an FHA-insured loan.

In addition to the ability to qualify for an FHA mortgage with a lower down payment, potential borrowers can usually be approved for an FHA mortgage with a down payment as low as 640. Lenders, because they are protected by the FHA insurance, are more lenient on the credit qualifications for these mortgages.

One disadvantage of FHA mortgages is that they require mortgage insurance, which adds to the monthly payments of these loans. Today's mortgage rates are low enough that even with mortgage insurance, the mortgage payments are more affordable than they have been in years.

If you are considering a home purchase or a refinance, consult with a lender to see if conventional financing or an FHA loan will result in the most affordable monthly payments. If you are borrowing between $629,500 and $729,750 in a high cost market, an FHA loan is likely to be the better option, because conventional loans will be priced as a jumbo loan in that price range and will have a higher interest rate.

For information on FHA mortgages in your area, go here for new mortgages and here (3)for refinancing options.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.