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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.
CONFORMING LOAN LIMITS GOING UP UP UP…HOPEFULLY
The US Congress passed a stimulus package. We all need stimulation right now.
Regarding the mortgage industry, one item stands out. If the President signs the bill, there is a good possiblity that the conforming loan limits will increase.
It is estimated that conforming loan limits for 1 unit properties will go from the current $417,000 to (an estimated) $729,000! For many people who are going to be buying properties and would be stuck with jumbo loans (i.e. much higher interest rates), this is big news. And many people will be able to refinance from two loans, often with higher-interest second mortgages, into one loan with better interest rates.
Look for updates.
BUYING A HOME IN CHICAGO JUST GOT MORE EXPENSIVE
Supposedly we are on the verge of a recession, homes are taking longer to sell, and everyone is…well…nervous.
So what does the Chicago City Counsil do? Increase the tax stamp, to the buyer, for buying a home!
What used to be $7.50 per $1,000 just increased to $10.50 per $1,000.
So a home that costs $300,000 currently carries a tax of $2,250, will have a cost of $3,150. And this becomes effective for purchases, in the city of Chicago, after April 1.
Besides knowing about the additional costs, borrowers should pay attention to a few things:
- Does the Good Faith Estimate disclose the costs?
- When a loan officer meets with a borrower and analyzes the borrower’s qualifications for a loan, does the loan officer take into consideration the new costs?
- Think about asking the seller to help pay for the costs.
Whether we like it or not, the increase is here.
CHOOSING A LOAN OFFICER WISELY
Everyone wants to be smart. Or is that…intelligent? Or…wise? Anyway, no one wants to come across as an idiot. Yes, idiot is a strong word, and really we just want to come across that we understand or know what we are talking about.
Today I was having a conversation with a colleague in my industry and we were talking about the personal choices that people make. Specifically, we were talking about running a mortgage bank, why some banks fail and some thrive, especially in the current environment. He explained his perspective that some people make (what he calls) intelligent decisions which are more what’s-in-it-for-me-now and may be great for the short-term but doomed to fail concerning long-term relationships and the growth and stability of the company. On the other hand, there are those who make wise decisions that not only try to accomplish the goals for the present but also (and more important) look toward the future for long-term relationship-building, trust, and mutual benefits.
I like this. Intelligence versus wisdom. And I thought about everyone who is thinking about buying a home and starting the mortgage process and my colleague’s ideas work well. Those buyers who are only focusing on rate, trying to get the best “deal” right now (intelligence) are always at risk for issues not only down the road but even only just a little piece down the road–as in a few days before closing.
Choose a loan officer wisely. A loan officer will certainly help with your loan for right now, but a great one will take into account and assist with your long-term goals and dreams and stability.
What do you think? Intelligent or wise?
Thanks Jim.
I Have Made A Change
Change is difficult. Kind of a two step process. First, there’s the deciding to make a change. Then, where are you going.
In any event, I am very excited to announce that I have moved to a mortgage bank here in Chicago. I am now at Professional Mortgage Partners.
A fabulous mortgage bank that offers both clients and loan officers a full range of programs with great support. We lend in most states and can get loans done very quickly. Still….I want to spend time with all of my clients and make sure they are comfortable with the decisions that they make.
I look forward to this change. See, that was easy.
REFINANCING YOUR MORTGAGE(S)…NOT SO EASY
About this time, just around the holidays, many people look to re-finance their mortgage. Or both of their mortgages. Sometimes to get some extra money for gifts, and sometimes to pay off credit cards.
It has been common, when buying a home and putting down less than a 20% down payment, to use a 2nd mortgage. This is common to avoid PMI (aka Private Mortgage Insurance–what people seem to think of as The Evil Empire).
So…for those who obtained a 1st and 2nd mortgage in purchasing their home, and now want to consolidate both into one loan, not a problem (so long as they qualify for the loan itself). But what about those who obtained one loan, at any loan-to-value, and then got a new 2nd mortgage after the purchase, and now want to refinance both? This could be a problem.
Basically, in mortgage lingo, if you want to refi a 1st and 2nd mortgage that was obtained for a purchase, this would be considered a rate and term refi. Its more risky cousin, a cash-out refi, where you are refinancing a 2nd mortgage that was obtained after the purchase, is riskier in that it is as though you are paying off credit card debts or literally taking cash out. So rates may be higher and some programs may not allow you to even refinance if the loan-to-value is too high.
So, some people who did say thanks are now saying “thanks a lot!” if they can’t get a loan. Be careful about when you get a second mortgage.