Surprise: FHA Loan Limits May Be Lower Than Expected

by Peter G. Miller
October 21st, 2008

For all the talk of higher FHA mortgage limits, a number of buyers and sellers may well find that big FHA loans are no longer available after January 1st.

The FHA loan limit has been bouncing up and down for the past year.

___In 2007 the maximum FHA loan amount for a single-family home in the lower 48 states was $362,790.

___ The temporary limit for 2008 is $729,750.

___ The 2008 limit has been set at $625,000 under the FHA Reform bill.

The catch is that not every area is “high cost.” The Fort Myers (FL) News-Press reports that in its area “beginning Jan. 1, the maximum amount that a person can borrow to finance their home using a loan from the Federal Housing Administration in Lee is $270,000, down from the current $356,000. The FHA doesn’t offer the loan itself but insures the debt to lower the lender’s risk.

“The yearly change is the result of a steep decline in the median home price. Since the record high of $322,300 for the Realtor-assisted sale of an existing single-family home in December 2005, the price has fallen 54 percent to $146,900 in August, according to the Florida Association of Realtors.”

In other words, there’s no sense looking at maximum FHA loan caps if they’re not available in your area.

This is a fairly good example of the government giving higher limits — and then effectively taking them away.

One possibility is that Congress could change the limits after the election. Certainly there has been no shortage of energy and interest when it comes to helping Wall Street, but the level of assistance for local communities has been microscopic. Most likely the Fort Myers paper is the first in the Nation to report what happens when program headlines conflict with program realities. Other media are likely to follow suit when the realize what is happening.

Where can you get more information?

First, speak with local FHA lenders.

Second, check out the FHA loan limit page online.

For the full News-Press story, see: FHA lowers home loan aid cap, October 19, 2008.

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