FHA to Drop Upper Mortgage Limits Jan. 1
The Federal Housing Administration will be reducing the amount it’ll insure on high-cost mortgages starting in the new year.
Beginning on Jan. 1, all FHA loans will be capped in high-cost areas at $625,500, reduced from the current cap of $729,750. FHA will keep its current loan limits in place in areas where housing costs are lower than $271,050. The new loan limit for the highest cost areas will affect about 650 counties, according to the Department of Housing and Urban Development.
FHA insures loans for buyers with down payments as low as 3.5 percent. The agency raised its limits during the financial crisis to help more home buyers, and the program quadrupled as a result. However, it faced mounting defaults and losses.
“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” says FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”
Source: U.S. Department of Housing and Urban Development; “HUD: “New FHA loan limit takes effect Jan. 1,” HousingWire (Dec. 6, 2013); “FHA to pull back on big mortgages,” CNNMoney (Dec. 8, 2013)