FHA mortgage limits may be raised

Hundred dollar bill folded in shape of a house

Home buyers and owners may be able to get FHA loans of up to $729,750 in the highest-cost areas of the country for the next two years, thanks to legislation Congress approved last week.

The measure awaits President Obama's signature.

The return to higher loan limits benefits home sellers and buyers because Federal Housing Administration loans are easier to qualify for than private-market loans.

The higher loan limits create a larger pool of potential buyers as well as giving those potential buyers lower interest rates.

The maximum loan size for Federal Housing Administration loans had fallen to $625,500 at the end of September. Consumers who want a mortgage above $625,500 to buy or refinance a home currently have to pay higher jumbo loan rates.

The new agreement would put the limits back at $729,750 in high-cost areas like San Francisco and New York.

The change in FHA loan limits affected 669 counties across the country, out of a total of 3,234 jurisdictions in which FHA insures home loans.

FHA’s lowest limit, a cap that applies in areas with the lowest home prices, is $271,050.

Congress has not returned the higher loan limits to Fannie Mae and Freddie Mac, which also offer loan guarantees to keep rates affordable.

At a Capitol Hill hearing last week, lawmakers criticized Fannie and Freddie’s CEOs for taking home about $6 million each in total compensation in 2011 while both companies are losing billions.

Government regulators defended the CEOs’ pay, saying that’s what it costs to hire qualified people capable of managing Fannie and Freddie’s trillions in assets.

The FHA, a division of the U.S. Department of Housing and Urban Development, doesn't actually make loans.
It guarantees that private lenders will be repaid, even if the borrower defaults.

With the government standing behind you, lenders can make loans they wouldn't normally offer at competitive interest rates that could cut your monthly payments by hundreds of dollars.

The big disadvantage to FHA financing is the home loan insurance you have to pay up front. It's the price you pay for having the government stand behind your loan.

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