Borrower News Lower Limits on FHA Loans

October 1st marked the first day of the newly-lowered FHA loan limits, which are expected to impact the borrowing abilities of buyers in some of the nation’s most expensive housing districts.

FHA loans, which are essentially loans guaranteed by the federal government via the Federal Housing Administration, are popular loan choices with individuals who are having a hard time saving enough cash for a traditional 20-percent downpayment—including first-time homebuyers nationally, and buyers in particularly expensive markets like California.

In the wake of the recent financial crisis and housing downturn, the loan limits were raised by Congress in February of 2009, in an effort to stimulate activity in the housing market and instill confidence in wavering lenders and buyers. In pricey regions, the limit was raised to $729,750, and meant that FHA loans represented a significant alternative for many buyers. The old limit for demarcation between jumbo and traditional loans was $417,000.

As of October 1st, loan limits are dropping, in accordance with a calculation that involves a county’s median income. The changes will be most noticeable in top-dollar markets, where limits are falling over $100,000—some, such as Monterey County in California, are dropping over $200,000.

Experts expect the loan limit drop to affect regional markets differently, particularly as most markets nationwide have median home prices well below the revised FHA loan limit amounts. Expensive markets, as outlined above, will be the most heavy-hit, and may drive some borrowers to explore homes at lower price points, thanks to their new-found inability to afford the fees and interest rates associated with larger loan balances.