2009 FHA Loan Limits To Continue

by Peter G. Miller
August 31st, 2009

The House Appropriations Committee has passed an appropriations bill which extends the FHA mortgage limits enacted last year.

This is both good news and bad.

On the good side, without the legislation to update the American Recovery and Reinvestment Act the maximum FHA loan amount for a one-unit property could have reverted to the old limit of $417,000. This would have greatly limited the ability to get FHA financing in a number of high-income, high-cost metro areas, not good news at a time when the housing market needs all the help it can get.

If the budget is approved, the single-family loan limit will remain $729,750 for high-cost areas in the lower 48 states and as much as $1,094,625 in Alaska, Hawaii, Guam and the Virgin Islands.

Because we no longer have national FHA loan limits, to find out how much may be available for you to finance or refinance a property you need to do two things. First, speak with lenders regarding the loan limit that will be in place when your loan is originated and, second, ask about the loan limit which is specific to your community. Press here for the official FHA loan limit page.

Real Politics At Work

Well, okay, what could possibly be the bad news?

Imagine for a moment that rather than doing what’s popular we actually did something that makes economic sense. Imagine that we lowered FHA loan limits.

I raise this idea not because it will happen, and certainly not because it would be a sure vote-getter for folks on Capitol Hill, but instead because that’s the way the loan limit system is actually supposed to work.

The idea was to adjust the loan limit — up OR down — to reflect market values. This sounds like a fairly sane and reasonable idea because if market values go down but loan limits go up or remain constant then there’s more financial risk in the system. However, no matter how sensible, lowering FHA loan limits at this time is not going to happen because there’s no political will to support such a notion.

The FHA is an insurance program, not an aid plan. That said, it’s amazing to hear people who allegedly worry about the financial stability of the FHA program not say a word when loan limits rise and risk increases.

According to the Federal Housing Finance Agency, home prices in April — the latest figures we have — were 10.7 percent below their April 2007 peak.

Reasonably, then, loan limits should be falling. But reason has little to do with our current economic policies. We’re going to allow bigger loans because the political and economic reality is that home values are on the ropes and keeping up loan limits does less harm than knocking them down and reducing local home sales.

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