Will Lower FHA Loan Limits Impact You?

So how big a deal are the lower FHA loan limits scheduled for October 1st?

According to a new study from George Washington University, not much.

A new report by Robert Van Order and Anthony Yezer shows that “the FHA still could serve 95 percent of its historic targeted market even if the maximum FHA loan limits were reduced by nearly 50 percent. To serve its target population, the report concludes that FHA only needs a market share of somewhere between 9 to 15 percent of total mortgage originations.”

Alternatively, the National Association of Home Builders also has just completed a report and it says the scheduled FHA limit declines “will affect 620 counties, adding 3.87 million homes to those outside the temporary loan limits, for a total of 12.2 million homes ineligible for
FHA-insured mortgages.”

So do we need higher FHA loan limits or not?

On one side it should be fairly obvious that the FHA loan limit is far beyond the needs of typical FHA borrowers. During May, reports HUD, the FHA insured 95,907 single family mortgages valued at $16.9 billion — that’s an average loan of just $176,212. The loan limit until October is $729,750 for a single-family home in high-cost areas within the lower 48 states.

So lowering, the FHA loan limit will have very little marketplace impact — except in high-cost communities and for those who hope to sell high-priced homes.

The idea that the FHA has a “target population” and that it “only” needs a 9 to 15 percent market share seems not in keeping with the usual demand for free-market options.

To start, there is no FHA restriction regarding who can borrow, no limit based on income. If you make $3 million a year you can still get an FHA loan. Thus the idea that there is a “target population” for FHA loans should be placed in perspective, the program is open to everyone who qualifies and wants a loan within the limits.

$100 a Month

It is a fact that the FHA particularly serves first-time buyers and minority borrowers, but that’s because for decades private lenders refused to make loans in minority communities.

“Over the last two years,” said HUD Secretary Shuan Donovan, the “FHA has helped over 2 million families buy a home — 80 percent of whom were first-time buyers. FHA also has helped nearly 1.5 million existing homeowners refinance into stable, affordable products, with monthly savings exceeding $100 in most cases. FHA financing was used by 38 percent of all homebuyers, insuring, along with the VA and federal farm programs, 81 percent of all loans to African Americans and 73 percent to Hispanics in 2009. But FHA is also a vital resource for homeowners facing foreclosure. FHA’s loss mitigation program minimizes the risk that financially struggling borrowers go into foreclosure. Since the start of the mortgage crisis, it has helped more than half a million homeowners.”

In the end, the dull reality is that most FHA borrowers will see no impact because of lower loan limits while those seeking bigger loans will have fewer options. Not no options, just one less.

For additional information, please go to: FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick.

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