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Huge Increase In FHA Loan Limit Passes Congress

by Peter G. Miller
February 8th, 2008

The San Jose Mercury News reports that the stimulus package approved by Congress will increase the FHA mortgage limit in high cost areas for a single-family home to $729,750 from the current $362,790.

In effect, the FHA loan limit and the conventional loan limit – which was raised from $417,000 to $729,750 – will be the same for at least a temporary period and probably for the long term if the President signs the bill.

The idea of the increase is to lower borrowing costs for home buyers in high cost areas such as California and New York.

By raising loan limits the definition of a “jumbo” loan has changed. Where before a $500,000 mortgage was an example of “jumbo” financing — and thus priced between .75 percent to almost 1 percent higher than a “conventional” loan — under the new system that same $500,000 mortgage would itself be an example of “conventional” financing and thus not subject to the higher cost of jumbo financing. Lower loan costs, it is hoped, will bring more buyers into the marketplace, increase demand, stop price declines and reduce the current inventory of unsold homes.

At least that’s the theory. In practice, it may be excruciatingly difficult to get the new super-jumbo loans unless your credit standing is absolutely sterling. The reason: Those who buy mortgage-backed securities may shy away from the new loans with high limits.

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This entry was posted on Friday, February 8th, 2008 at 5:42 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

25 Responses to “Huge Increase In FHA Loan Limit Passes Congress”

  1. Don Walker Says:

    Is this service an FHA information forum or your personal political blog. Please stick to the FHA information. We are smart enough to make our own political decisions.

    Don Walker

  2. TommyD Says:

    What are the changes of conventional interest rates rising as a result of increasing the cap for FHA and conventional loans to $729,750?

  3. MB Says:

    When will lenders start allowing/approving these new loan limit guidelines ?

  4. hopie Says:

    when will lenders start allowing the new loan limits???

  5. James Says:

    According to the verbiage in the stimulus plan being signed into law today, FHA has 30 days to act upon the increased loan limits. Looking at their pass reaction times I would expect to see them take action within 1-2 weeks.

    If anyone hears of a confirmed date please post it.

  6. Peter G. Miller Says:

    James –

    Thanks. Good point.

    Peter

  7. Tracy Says:

    Will the new loan limits be available to everyone?

  8. Mikhail Says:

    I just spoke with the mortgage agent. They have no ETA of the changes at this point. So, it looks to be a while longer before we can actually reap the benefit of this. Also, you need to have at least 5% of your eqity paid down in order to actually benefit from this change.

  9. marrieanne Says:

    my loan officer says the new limits for fha loan will be available this month and I can close. Is he leading me down a dark path. or is this true

  10. John Says:

    Is this new FHA loan limit going to affect all states, such as Michigan and Indiana or just New York and California?

  11. Jonathan Says:

    This increase in loan limits will affect more than New York and California, however it will not affect everyone. Along with most of New York and California it will also benefit Chicagos, Atlantas, etc.

  12. Leila Says:

    The loan limit will affect EVERYONE. The limit will be based on 125% of an area’s median home price. So i.e. DC area that will be approximately $532-538k. We also don’t have a set date on when we are able to offer the large limits.

  13. gloria iris Says:

    PLEASE BE AWARE THERE IS A LOT OF PEOPLE LOOSING THEIR HOUSES WE CAN NOT WAIT UNTIL YOU DECIDE TO RELEASE GUIDELINES.

    PLEASE HAVE MERCY ON THE PEOPLE

  14. Joanna Says:

    I received a call this morning from my loan agent saying he received an email last night stating FHA loans will be increased by the 2nd week in March. Is this true?

  15. bailey Says:

    We have keep being told FHA will be finalized any day now although we are able to put down the 5% we would REALLY like to put down the 3% with the FHA loan. Has anyone heard when lenders are planning to start using the new guidelines? I’ve heard a few times that it will be this month but wondering if thats true, and if so when? I read the gov. has 30 days to act from when it was signed so from what i’ve read if thats true the latest they have is March 13th? Does that sound right to anyone?

  16. Michael Says:

    My wife and I plan on closing a home mortage on the 14th of this month and we are in the same position waiting on the increase for just and additonal 15,000 increase. Our home insepection will be done this friday. Then we’ve heard it takes about exactly a week thereafter for the appraisel to come back and if all this is true we should be able to get into the home we want without having to come up with an additional 6,000 doallars to get the house we want. Other than that the only thing we can do is prolong the closing date and hopefully don’t miss out on the deal.

  17. Joe Says:

    You must discuss this with whoever is accomplishing the loan for you. If your rate was already locked as a jumbo, that can potentially become a problem with the lender who locked it. If that is the case and you have them appraise your home, that appraisal may not be transferrable. So to avoid any conflict, have your current loan officer/lender put something in writing that states – when the loan limit increase is executed, you will be able to receive the lower conforming rate.

  18. bailey Says:

    Has anyone heard anything further about when the FHA will increase?

  19. A.Weisner Says:

    By law, the HUD HAS TO change the limits on FHA passed by congress ON or BEFORE March 14th, 2008. Below is a link to a site that explains it even further. Hope this helps.

    On February 13, 2008 President Bush signed into law the Economic Stimulus bill. This legislation included a temporary increase in the FHA loan limits, set to expire on December 31, 2008. The new limits, which will be published and effective no later than March 14, 2008, will be increased to 125% of local median home price (from 95%). In addition the loan limit floor (for lower cost areas) would increase from $200,160 to $271,050. In high cost areas the ceiling would raise from $362,790 up as high as $729,750. In addition, the HUD Secretary will have the discretion to further increase any local loan limit an additional $100,000

    http://www.realtor.org/fedistrk.nsf/c2c6e17e27e92119852572f8005cd953/0ebfc026e2567fc8862571070073b616?OpenDocument

  20. Bill Kuster Says:

    Looks to me like they acted yesterday?

  21. Peter G. Miller Says:

    Bill –

    It would be reasonable to have official announcements while the program is actually up and running. There are lots of steps which must be taken and you can figure that all have been completed and tested by this point. So, I would imagine that in practice you’re right and that the pieces are in place to make higher loan limits for FHA mortgages a practical fact.

  22. Irv Brechner Says:

    Is this new law in effect now? If not, when does it take effect?

  23. Gregory W. Demos Says:

    I live in RI and have a 30yr Jumbo loan. According to my broker, RI had their stimulus jumbo status raised from $415 to $475. Gee thanks. Not only that, but since the paper is likely to be sold the points attached make it even less attractive. There is apparantly no provision for LTV/Income/or credit score either.

  24. Gary P Says:

    Does the new ceiling on loans include refi’s? If so, is it now in effect.

  25. Matt Says:

    What would this change mean to me: I want to purchase a house in Nashville, TN for $450,000? Could I get an FHA loan for that under the new rules? Would it be a jumbo loan rate or a conventional loan rate? Is there a maximum income level restriction? Is there a downpayment requirement?

    Thanks.

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