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September 8, 2011 – After three years of higher loan limits in some areas, the Federal Housing Administration (FHA) announced in August that single-family home loan limits will be lowered starting Oct. 1. This change is in accordance with the Housing and Economic Recovery Act (HERA) that was passed in July 2008.
The Economic Stimulus Act passed in February 2008 under President George W. Bush raised limits for home loans insured by the FHA to 125 percent of the median house price in the area. This was an effort to “mitigate the effects from the economic downturn and the sharp reduction of mortgage credit availability from private sources,” according to a May market analysis from the U.S. Department of Housing and Urban Development.
While initially the new loan limits stipulated in the HERA were set to take effect in January 2009, financial strains in the credit market delayed congressional implementation until now. The loan limits beginning on Oct. 1 will be in effect until Dec. 31, 2011. The floor loan limit in low cost areas will stay at $271,050 for one-unit properties, while the ceiling limit in high housing cost areas will change from $729,750 to $625,500, or 115 percent of the median house price (whichever is lower).
The new loan limits will take effect in the highest cost metropolitan areas in the country, which amounts to 669 counties out of the 3,234 total in the U.S. in which the FHA insures home loans. According to the FHA, loans in these areas accounted for about three percent of loans granted last year. Any loans insured by the FHA before Oct. 1, 2011 will not be affected by these new limits, including streamline refinance loans. Limits in Hawaii, Guam, the Virgin Islands and Alaska are higher than in other areas because of higher construction costs.