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Little Impact Expected from Lower FHA Limits

New limits in effect on Oct. 1

Aug. 20, 2011

By MortgageDaily.com staff


The Federal Housing Administration doesn't see much impact to borrowers from the upcoming expiration of higher FHA limits. In addition to announcing new limits on traditional mortgages, limits on reverse mortgages were released.

On Oct. 1, temporarily higher loan limits established under the Economic Stimulus Act of 2008 -- and subsequently extended -- will no longer be in effect.

In their place will be not-quite-as-high loan limits created through the Housing and Economic Recovery Act of 2008.

On Friday, the Department of Housing and Urban Development released Mortgagee Letter 11-29 outlining the lower limits that will be in effect if no action is taken by Congress.

But pending Senate legislation that would extend the higher limit for another 2 years has a chance of becoming law, according to a Washington, D.C., insider who asked to remain anonymous. He notes that mortgage bankers, homebuilders and Realtors are behind an extension of the higher limit.

He explained that more than 50 members of Congress are from California, where mortgage limits in some areas are "going to fall off a cliff."

In the event, however, that no extension is granted, the maximum FHA loan in high-cost areas will fall to $625,500 for one unit properties from $729,750.

High-cost two-unit loans will be limited to $800,775, while the three-unit limit is $967,950 and a fourplex can be financed up to $1,202,925.

Among areas at the maximum limit are counties in California, Colorado and the nation's Capitol. Also on the exclusive list are counties in Hawaii and Idaho and on the East Coast.

The mortgagee letter indicated that 669 U.S. counties out of 3,234 total FHA jurisdictions will be impacted by the expiration.

"FHA estimates that only a fraction of borrowers living in the nation's highest cost areas will be impacted by the new loan limits announced today," HUD said in a statement. "For example, last year only three percent of FHA-insured borrowers lived in these high-cost areas."

In Alaska, Guam, Hawaii and the U.S. Virgin Islands, the one-unit loan limit is $938,250. The limit on four-unit properties is $1,804,375.

The new limits will be in place until Dec. 31.

On home-equity conversion mortgages, the limit will remain $625,500.

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