NEW FHA LOAN LIMITS: HOW MUCH IS A LIMIT WORTH?

I have waited to write a post about the new FHA loan limits. (See my reasoning below.)

The good news is that the limits for lending have increased for many areas. As outlined in the Allregs guide:

“The Act provides that the mortgage limit for any given area shall be set at 125% of the median house price in that area, as determined by the Department of Housing and Urban Development, except that the FHA mortgage limit in any given area cannot exceed 175% of the 2008 Freddie Mac conforming loan limit of $417,000, nor be lower than 65% of the same 2008 Freddie Mac conforming loan limit for a residence of applicable size.

Thus, in areas where 125% of the median house price is less than 65% of the Freddie Mac limit, the FHA limits are set at the 65% limit, i.e., the “floor,” as follows:

          1 Unit:  $271,050

          2 Units: $347,000

          3 Units: $419,400

          4 Units: $521,250

In areas where 125% of the median house price exceeds the 175% limit of $729,750 for a 1-unit property, the mortgage limits are set at the 175% amount, i.e., the “ceiling,” as follows:

          1 Unit:  $729,750

          2 Units: $934,200

          3 Units: $1,129,250

          4 Units: $1,403,400

For all other areas, i.e., those where 125% of the median home price for the area is in between the floor and the ceiling, the limit shall be at 125% of the median home price.”

So the news, for a change, is good for everyone. Buyers who need a more liberal mortgage program (i.e. have little down payment, not spectacular credit scores/history, little money in reserves, etc.), FHA is a great way to go. Sellers will have more opportunity to sell their homes, as there may be more buyers available, particularly for higher priced homes.

Here’s my thought though: I looked up the word “limit,” and the definitions point to the idea of boundary or restraint. I think we should keep this in mind.

Yes, the new FHA limits allow more people to buy “more home.” Sound familiar? Remember all those programs, in the last four years, that were able to “buy more home” buy offering high LTV (low down payment), interest only, and negative amortization programs? No income or assets required? No job, no problem? Remember those programs and remind ourselves of all the heartbreak that has spread not only throughout the country but also throughout the world.

Let’s make sure we do the right thing. Budget. Limit ourselves. Just because the limit is $729,750, doesn’t mean that we have to take a loan for that much.

Still, this is great news for the beginning of the spring season.

12 March 2008 | Down Payment, First Time Homebuyers, Fixed Rate/ARM, Income, Credit (Score), Reserves/Assets, Programs | Comments

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