Changing FHA Loan Limits
July 16th, 2007
Related FHA Stories
- FHA Mortgage Limits To Stay The Same In 2008
- Are Bigger FHA Loan Limits Ahead?
- What Higher Conventional Loan Limits Might Mean
- Loan Limits Become Complex in 2009
- It’s Official — Loan Limits Remain the Same
Deep within the federal government is something known as the Office of Federal Housing Enterprise Oversight (OFHEO). No, this is not a secret entity or part of the CIA. Instead, it’s an agency which oversees Fannie Mae and Freddie Mac.
One of the functions that Fannie Mae and Freddie Mac perform each year is to establish the conventional loan limit. The conventional loan limit is important because if you get a loan below the limit you have conforming financing — above the limit you have a “jumbo” loan and a somewhat higher interest rate.
For 2009 the conventional loan limit in the lower 48 states is $417,000 for a single-family house. The limit is higher for two-unit properties ($533,850), three-unit properties ($645,300) and four-unit properties ($801,950). The limit is also 50 percent higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. For properties with multiple units, borrowers must live in one unit to qualify for FHA financing.
There is another important point about the conventional loan limit: The most money you can borrow under the FHA loan program in a high-cost area is equal to 87 percent of the conventional loan limit.
So, if the conventional loan limit rises so does the FHA limit.
OFHEO is now wondering how to deal with the conventional loan limit when home prices fall — as they did in 2006. Since home prices went down the conventional loan limit should also have fallen. It didn’t, instead the 2006 loan limit was allowed to stay in place.
Why is this a big deal? Risk. If a higher conventional loan limit is not justified by market values, then lenders have additional risk. Also, if you’re a borrower you want a higher rate so you can get a bigger loan at less cost.
OFHEO is now asking for comments regarding how, if at all, the present system should be changed. If you have an opinion, you must get your comments in quickly. Comments are due by July 19 and should be addressed to Alfred Pollard, General Counsel, OFHEO, at either 1700 G Street N.W., 4th Floor, Washington, D.C. 20552 or firstname.lastname@example.org. For details, see: http://www.ofheo.gov/media/pdf/confloanlimguidance62007.pdf.
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