Increased FHA Loan Limits - Expiring on Sept. 30, 2011

On his August 4 Podcast, NAR President Ron Phipps encouraged homeowners to talk to their Congress about extending the FHA loan limits which is set to expire this coming 30th of September 2011.  This may potentially affect 42 cities and 690 counties.

Prior to 2008, the FHA loan limits restrict the size of mortgages that can be insured by the Federal Housing Administration or FHA.  The National Housing Act, required FHA mortgage limits be set at 95% of the median house price in that area not exceeding 87% or go lower than 48% of the conforming mortgage limit established by the Government Sponsored Enterprises or GSE in any given area. For the high-cost states and territories such as Alaska, Guam, Hawaii and the Virgin Islands - the allowed mortgage limits is set at 150% of the national ceiling.

To control the effects of the economic crisis and the sharp reduction of mortgage credit availability from private sources, the Congress temporarily increased FHA loan limits in 2008. The Economic Stimulus Act (ESA) enacted in February 2008 stipulated that FHA loan limits be set temporarily at 125% of the median house price in each area.  The FHA loan limits could not exceed 175% of the 2008 GSE conforming mortgage limit of $417,000; nor be lower than 65% of the same 2008 GSE conforming loan limit for a residence of applicable size for any given area. Also, ESA stipulated that mortgage limits for Alaska, Guam and the Virgin Islands be adjusted up to 150% of the national ceiling. (Source: portal.hud.gov)

The Congress has set-up Federal Housing Finance Administration or FHFA to establish the conforming mortgage limits for the nation and for high cost areas.  Since 2009, the national conforming mortgage limit has been set at $417,000. Mortgage limits under THE Housing and Economic Recovery Act or HERA are set at 115% of the county with the highest median house price within that MSA but cannot exceed 150 percent nor be lower than 65 percent of the GSE conforming mortgage limit. Similar to previous

regimes, Section 214 of the National Housing Act applies in HERA. This section allows mortgage limits for Alaska, Guam, Hawaii and the Virgin Islands to be 150% higher than the ceiling.

Maximum Original Principal Balance for Loans Closed in 2011*
	Contiguous States, District of Columbia and Puerto Rico		Alaska, Guam, Hawaii and the US Virgin Islands
Units	General	High Cost*	General	High Cost*
1	$417,000	$729,750	$625,500	$938,250
2	$533,850	$934,238	$800,775	$1,201,163
3	$645,300	$1,129,275	$967,950	$1,451,925
4	$801,950	$1,403,413	$1,202,925	$1,804,388

* The limit may be lower for a specific high-cost area. These limits are the same as the 2010 high-cost area loan limits and apply to all loans originated on or before September 30, 2011. Loans originated on or after October 1, 2011, will use the "permanent" high-cost area loan limits established by FHFA under a formula of 115% of the 2010 median home price, up to a maximum of $625,500 for a 1-unit property in the continental U.S.  

FHA mortgages are popular with many buyers, particularly for their first homes, because the loans feature attractive interest rates and down payments as low as 3.5%. Last year, FHA insured more than 40% of home-buying loans in the US.

Once the loan limits are in effect, it is likely that the number of home buyers will be reduced and cause sellers to cut their prices if they want to attract FHA buyers.

If you want to know more about the loan limits expiration, please refer to

https://www.efanniemae.com/sf/refmaterials/loanlimits/pdf/loanlimitsexpiration.pdf