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November 27, 2011

Higher FHA Loan Amounts Extended by Congress

Category: FHA Mortgage,Mortgage News,Published Articles – admin – 5:15 pm

After months of mortgage relief talk, Congress passed a bill that would increase FHA mortgage limits. This was a government compromise that would help homeowners with less than perfect credit get rid of their bad credit mortgage with a record low fixed interest rate. With higher FHA loans, borrowers will have more home loan choices. The fact is that new home buyers and people looking for an affordable refinance would see higher amounts in more than 660 markets across the country. Congress raised loan limits for FHA home loans while leaving loan ceilings untouched for Fannie Mae and Freddie Mac. In effect, this may make FHA the go-to financing option for borrowers needing loans up to $729,750 with down payments as low as 3.5 % in higher cost regions of California; Washington, D.C.; New York, New Jersey and in other states including Massachusetts, Florida and North Carolina.  Fannie Mae and Freddie Mac home mortgage loan programs in those areas, meanwhile, stay capped at $625,500. Equally important, the new plan raises the FHA ceilings for purchasers in hundreds of more moderate-priced markets. For Seattle-area buyers’ the maximum FHA loan amounts jumped to $567,500, while the Fannie Mae-Freddie Mac ceiling remains at $506,000. In Hartford, Connecticut, the limit for FHA is now $440,000 up from $320,850 yet the maximum loan amount for Fannie Mae and Freddie Main are limited to $417,000.

Home buyers with low down payments in Portland, Oregon, who previously had been limited to FHA mortgages of $362,250, can borrow up to $418,750 under the new plan, $1,500 more than they can get from Fannie and Freddie, which generally require steeper down payments and higher credit scores. The new loan ceilings in hundreds of markets are at the core of the compromise: They raise the maximum FHA loan amount in all areas of the country to 125% of the local median home-sale price, while leaving Fannie Mae’s and Freddie Mac’s limit at 115% of median.

What motivated Congress to create separate and unequal rules that transform FHA traditionally a haven for moderate income, first-time buyers with minimal cash — into a key source of financing for buyers in the upper as well as mid-bracket markets? Nobody in Congress actually proposed this idea at the start. By a 60-38 vote in October, the Senate passed an amendment raising all three agencies’ limits to $729,750 in high cost areas and 125% of the median sale price elsewhere. The goal lobbied aggressively by realty and homebuilding groups was to inject needed oomph into lagging home sales. But Republicans in the House balked at doing anything that might prolong the existence of Fannie and Freddie, both the targets of scathing criticism for their multibillion costs to taxpayers and big bonuses for top executives. What ultimately emerged from the legislative scrum was the current compromise penalizing Fannie and Freddie, while boosting FHA. House Republicans weren’t enthusiastic about helping FHA, either the agency faces its own financial challenges but unlike Fannie and Freddie, FHA is subject to congressional appropriations and closer oversight. Republican critics held their noses and voted for the plan. What will this mean for buyers from now through the end of 2013, when the compromise expires? “There’s no doubt this will drive more business to FHA,” said David H. Stevens, former FHA commissioner.” Read the rest of the Daily Herald Article Here.

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