The Fair Housing Administration (FHA), has recently increased the limits on the loans they are willing to insure. On February 29, 2008, the limit was raised for a one family home to $304,000, for more than one family, please visit the local HUD site at https://entp.hud.gov/idapp/html/hicost1.cfm
So what does this actually mean? Basically, a higher limit means more people that might not have been able to secure a loan will be able to. To better understand why, it's probably a good idea to understand exactly what the FHA does, here are a couple of pretty good descriptions;
"FHA insures lenders against loss in the event that borrowers default on their loans. In this way, FHA encourages lenders to make loans that they might otherwise view as too risky. FHA began operations in the depths of the depression of the 1930s when lenders had stopped making new loans altogether because a sizeable proportion of existing loans were in default. As the country worked its way out of the depression, the FHA settled into the principal role it has today: helping a segment of the low-and-moderate-income population become homeowners who otherwise might not make it because they have shaky credit or can't come up with the cash needed for the down payment."
Courtesy Mortgage Professor
Government-insured mortgages are often considered the financing of last resort for buyers who can't qualify under the more rigid requirements for loans that conform to Freddie Mac and Fannie Mae's standards. The FHA insured a record 1.3 million mortgages last year, to the tune of $124 billion.
Without the government's help, borrowers with less-than-sterling credit are either forced out of the market or into paying much higher loan rates than those charged by FHA-approved lenders.
The FHA does not make loans directly. Rather, it insures mortgages made by private lenders. The insurance guarantees the timely payment of principal and interest in the event the buyer defaults on the loan.
But because the insurance is paid for by premiums paid by buyers, the higher loan limits will not cost the government any money. Indeed, the FHA's standard Section 203 insurance fund actually produces a profit every year.
About four out of every five FHA borrowers are first-time buyers. Also, about 40 percent of all home loans made to African Americans and Hispanics are backed by FHA insurance.
The higher loan limits also apply to rehabilitation financing, which allow borrowers to finance the cost of buying a home and repairing it into a single mortgage, and reverse mortgages, which permit seniors age 62 or older to convert their equity into cash without having to sell their homes or move out.
courtesy Realty Times
Regardless of the "doom and gloom" stories the media keeps stuffing down our throats, this increase in FHA limits is just one more example of why this is such an amazing time for consumers that are able to purchase real estate.
