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Government loan limits to be lowered in some areas

[Sep 14, 2011.]

 

FHA loans, insured by the federal government and offered by most lenders, are regulated by the U.S. Congress. These mortgage loans, which require a down payment of just 3.5 percent, are limited according to the housing prices in various counties around the country. The loan limits must be approved by Congress. Unless Congress acts quickly, the loan limits on FHA home loans are set to change on October 1, 2011.


Mortgage loan limits


In most areas, the standard maximum for FHA mortgage loans is $417,000, but in areas with expensive housing costs, the limits have been as high as $729,750 in many places and above $1,000,000 in Hawaii, Guam and the Virgin Islands. The mortgage limits were raised during the economic crisis to make sure that buyers and homeowners who want to refinance could have access to mortgage loans in spite of tightened credit standards, but now many in Congress and the Obama administration want to see private lending expanded and government-insured lending reduced. The new upper limit for FHA loans in most high-cost areas will be $625,500.


Loans guaranteed by Fannie Mae and Freddie Mac are also set to be limited on October 1, 2011 to $625,500.


You can find out the FHA loan limit in your area by searching here.


The impact of home mortgage changes


If you are purchasing a home above the new loan limits or refinancing a home mortgage for a higher amount, you should expect to make a larger down payment and possibly pay a higher interest rate. One option is to come up with a large enough down payment so that you only need to borrow an amount below the loan limit. If you cannot scrape up that much cash, you will likely need to make a down payment of 20 or perhaps 25 percent to qualify for a jumbo home mortgage. In addition, jumbo loan interest rates are often slightly higher than mortgage rates for conforming loans.


If you are refinancing, you may need more equity to qualify for a new home mortgage than you would have with an FHA loan or a loan guaranteed by Fannie Mae or Freddie Mac.


Whether you are refinancing or purchasing a home, if you need to borrow a larger home mortgage, you should expect mortgage lenders to set the credit qualifications bar a little higher.


Find out more about new home loan options in your area here or for refinancing options, go here.



 

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.

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