June 27, 2011
The FHA has made an important announcement that could affect the loan limit on new FHA mortgages in some areas on or after October 1, 2011.
According to FHA.gov, “Barring Congressional action, Federal Housing Administration (FHA) loan limits will revert back to loan limits determined under the Housing and Economic Recovery Act (HERA) for loans insured by FHA on or after October 1, 2011. As a result, FHA loan limits would likely decline in 669 of the 3,334 counties or county equivalents that are eligible for FHA insurance.”
During the housing crisis of 2008, the FHA temporarily increased FHA loan limits. According to the FHA announcement, “The Economic Stimulus Act (ESA) enacted in February 2008 stipulated that FHA loan limits be set temporarily at 125 percent of the median house price in each area. The FHA loan limits could not exceed 175 percent of the 2008 GSE conforming mortgage limit of $417,000; nor be lower than 65 percent 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, Hawaii, and the Virgin Islands be adjusted up to 150 percent of the national ceiling.”
What were the FHA loan limit rules like prior to the 2008 changes? According to FHA.gov, “Prior to 2008, the National Housing Act, as amended in 1998 Mortgagee Letter 1998-28, required that FHA mortgage limits be set at 95 percent of the median house price in that area.”
“However, FHA loan limits could not exceed 87 percent or go lower than 48 percent of the conforming mortgage limit established by the Government Sponsored Enterprises (GSE) in any given area. For the high-cost states and territories (Alaska, Guam, Hawaii, and the Virgin Islands), the National Housing Act allowed mortgage limits to be 150 percent of the national ceiling.”
The housing troubles of 2008 brought many temporary measures to try to fix the problem or at least temporarily offer some form of relief. FHA loan limit changes were part of that effort, but unless Congress acts to prevent it, 669 counties will experience a “decline” in FHA loan limits in October–the maximum amount of money an FHA loan applicant would be able to borrow (if qualified) for an FHA-insured mortgage in these affected counties would decrease.
Many of the affected housing markets are on the east and west coast, but parts of Florida, Illinois, Texas and other states would also see lower maximum loan limits.
It’s important to note that these potential changes in FHA loan limits are not set in stone as of the time of this writing–Congress could act to prevent loan limits from declining, passing another set of temporary measures while it considers the impact of such declines. We’ll continue to explore this issue in future blog posts.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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