Higher FHA Loan Limits Aid Buyers

WASHINGTON —  In a move that will help thousands more families become homeowners, Uncle Sam has raised the bar on mortgages insured by the Federal Housing Administration.

As of Jan. 1, the FHA will back loans of up to $239,250 in 19 high-cost areas, including 11 areas in California, and up to at least $132,000 elsewhere.

In Los Angeles, the new maximum will be $228,000, an increase of $13,015 from the current $214,985 ceiling.

The higher limits “will expand homeownership opportunities nationwide,” said Richard Mendenhall, president of the National Assn. of Realtors.

The new maximums represent an 8.83% increase over this year’s limits, which were $219,849 in the nation’s most expensive markets, and $109,032 in places where housing costs are less expensive.

The FHA doesn’t make loans to home buyers, but indemnifies private lenders against losses when borrowers don’t make payments.

The agency insures more than 1.25 million mortgages a year, mostly to first-time buyers who cannot meet the more rigid requirements of conventional financing. In addition, about three out of every five mortgages made to African Americans and Hispanics are backed by FHA insurance.

Government-insured loans are often the financing of last resort. Without the government’s backing, these buyers would be forced to either forgo homeownership or pay rates higher than those charged by FHA-approved lenders.

“FHA is important to buyers who can’t qualify for privately insured mortgages,” said Mendenhall, a Columbia, Mo., broker. “The higher limits will allow more first-timers to enter the market.”

But because insurance is paid for by borrowers, the higher limits will not cost taxpayers any money. The FHA’s standard mortgage insurance fund is so flush with cash that the agency reinstituted a refund program that has been inactive for nearly six years.

FHA loan limits are set by counties and tied to increases in the ceiling placed on “conforming” mortgages purchased by Freddie Mac, a key secondary-market institution that buys loans from local lenders and packages them into securities that are sold to investors throughout the world.

By law, the basic FHA limit, or “floor,” may not be less than 48% of Freddie Mac’s ceiling. The “ceiling,” or limit in high-cost areas, may be no more than 87% of the Freddie Mac limit or 95% of the area’s median house price, whichever is less.

In late November, Freddie Mac and its chief rival, Fannie Mae, said they would raise their limits 8.83%, from $252,700 to $275,000 effective Jan. 1 in accordance with the latest government housing price index. And FHA Commissioner William Apgar announced the new government limits a few days before Christmas.

The delay is normal because every year the agency has to reevaluate 3,200 counties.

While only 19 counties are at the maximum, some 650 are between the two limits. The others are at the floor.

But in some places the FHA limit won’t go up because 95% of the area median price is the lower of the ceiling-setting formula’s two benchmarks. Even in some more expensive areas, the old maximum did not change. In others, they went up but not to the limit.

The higher ceilings also apply to government-insured rehabilitation loans, which allow buyers to roll into a single mortgage the cost of acquiring a house and fixing it up, and reverse mortgages, which permit senior owners age 62 or older to convert their equity into cash without having to sell or move out of their homes.

The FHA’s new basic limit for two- to four-unit houses are $168,936 for two-unit buildings, $204,192 for three and $253,776 for four. In high-cost areas, the new ceilings are $306,196 for a two-unit, $370,098 for three and $459,969 for four.

A complete schedule of FHA loan limits is available on the Internet at https://www.hud.gov/fha. Questions concerning the ceilings should be directed to local lenders or HUD’s Homeownership Center in Santa Ana at (888) 827-5605.

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Lew Sichelman’s weekly housing column is syndicated to newspapers throughout the country.