It didn’t take long for the lower mortgage limits that began October 1st to be changed. As of November 18th the mortgage rate limits were selectively revised with FHA loan limits increasing but with conventional loan limits staying the same.
Does this change make a lot of sense? No. Is this change the law of the land? Yes.
Let’s see what happened.
Mortgage loan limits were raised substantially in 2008. It was thought that higher limits will would help revive high-cost real estate markets in big cities and along the cost. After three years it became obvious that higher loan limits helped few but created additional risk for lenders and mortgage insurance programs, such as the FHA.
To solve the risk problem, Congress agreed to lower mortgage loan rates as of October 1, 2011. The rates were lowered and the world did not collapse. Indeed, the National Association of Realtors reported that in October existing home sales ROSE despite the lower loan limits.
With everything working well Congress naturally decided to raise FHA and conventional loan limits back to the pre-October 2011 levels. The new legislation passed with huge majorities in the Senate (60-39) and the House (298-121).
However, when the legislation got into a conference committee — representatives from both houses who are supposed to work out any conflicts in the two pieces of legislation — a strange thing happened: FHA conforming loan limits went up for two years and conventional loan limits remained stuck.
It used to be FHA loans were always smaller than conventional loans for a very simple reason: FHA loans could be no larger than 87 percent of the conventional loan limit. So, if the conventional loan limit was $300,000 the largest FHA mortgage could only be $261,000 in the lower 48 states.
Now we have a situation where FHA mortgages can be bigger in high-cost areas than conventional loans. This is remarkable given how some lenders have worried that the FHA program will be over-utilized or that it allegedly will need billions of dollars in taxpayer bailout money. (See: Will The FHA Go Bankrupt?)
Also, some conservatives object to the FHA because it sells mortgage insurance, something the private sector also sells.
So, where do we stand with loan limits as of November 19, 2011? Here we go:
How Mortgage Limits Vary
There are several types of mortgage loan limits. Generally, most borrowers need to look at the limits for conventional, FHA and VA loans to see how much can be financed with the most-widely originated loans.
If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.
As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.
As of October 1, 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, loan limits depend on; one, whether the property is in a general or high cost area; two, whether the property is within the lower 48 states; and, three, whether the property located in Alaska, Hawaii, Guam and the U.S Virgin Islands.
In general terms, the October 2011 loan limits for a single-family home range from $417,000 to $625,500 in the 48 continental states. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.
Minimum/Maximum Original Loan Amount Loan Amount
Properties in Alaska, Hawaii, Guam and the U.S Virgin Islands
Maximum Loan Amount,
Maximum Loan Amount,
Minimum Loan Amount,
Maximum Loan Amount,
|Source: Freddie Mac. 1 These are the maximum potential loan limits for designated high-cost areas. Actual loan limits are established for each county (or equivalent) and the loan limits for specific high-cost areas may be lower. The original principal balance of a mortgage must not exceed the maximum loan limit for the specific area in which the mortgaged premises is located. For specific loan limits for each high-cost area, as released by the Federal Housing Finance Agency, press here.|
After October 1, 2011 the Department of Veterans Affairs (VA) will use the same loan limits as before. There are no changes. As the VA explains:
“The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.”
Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:
Some important points about financing for vets, active-duty personnel, and members of the National Guard and Reserve:
- Qualified individuals can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
- In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.
- Individuals on active duty have strong protections preventing foreclosure under the Servicemembers Civil Relief Act (SCRA).
The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or you reside in Alaska, Guam, Hawaii, and the Virgin Islands.
As of November 18, 2011 and through 2013 the FHA 203(b) loan limits look like this:
November 18, 2011
|Property Size||Low Cost “Floor”||High Cost “Ceiling”||Alaska, Hawaii, Guam & Virgin Islands|
To qualify for the FHA loans above, at least one unit must be owner occupied.
HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the FHA Loan Limits Page
FHA-Insured Reverse Mortgages
The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) will remain at $625,500. HUD, in 2010, introduced the HECM Saver program as an alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.
A Brief History
Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.
The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.
Until September 30, 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extended the maximum loan limits first established in 2008.
On November 18, 2011 the President signed H.R. 2112: The Consolidated and Further Continuing Appropriations Act, 2012. This legislation increased the FHA loan limit.
A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.
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