It’s Time To Raise FHA Limits — And More

by Peter G. Miller
September 18th, 2007

For a long time the FHA loan limit in high-cost housing areas has been limited to 87 percent of the conventional loan limit. Since the 2007 conventional loan limit is $417,000 for a single-family home in the lower-48 states, it follows that the FHA loan limit is $362,790 ($417,000 x .87). The loan limit for low cost areas is 48 percent of the conventional loan limit, or $200,160 for a single-family home.

The logic for lower loan limits is that it protects private-sector lenders — they need not compete with FHA financing above a certain value. If you believe that government should not compete with private business, this makes some sense — but not much.

The current FHA loan limits are artificial barriers that have little to do with marketplace realities. The fact is that some high-cost areas are remarkably high — think of California, New York, Boston, Seattle, Portland and the Washington, DC metro area. For many borrowers in such areas, the FHA program is essentially useless because of the current loan limits.

So I say — with some cautions — raise the FHA loan limit to the conventional level. But don’t stop there — limit points and fees on FHA financing and return to 1/5 ARM caps. Higher limits are okay, but the FHA should still be the low-cost alternative to private-sector loans, as it historically has been for decades.

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This entry was posted on Tuesday, September 18th, 2007 at 1:40 pm and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “It’s Time To Raise FHA Limits — And More”

  1. Sara Foster Says:

    I live in a 3 family house that was converted into condominiums. there are three codnos in my building. Does this disqualify me from refinancing with a FHA loan officer? This is not an FHA approved condo.

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