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Higher Limits Restored on FHA Loans

By:
Kirk Haverkamp | November 19, 2011

Mortgage limits on FHA home loans have been raised back to their former levels, meaning consumers can once again borrow as much as $729,750 on an FHA mortgageThat’s good news for high-end borrowers but will also benefit many seeking to borrow lesser amounts as well.

Legislation restoring the former limits was passed by Congress on Thursday and was signed into law by President Obama today. The maximum FHA loan limit had fallen to the old maximum of $625,500 on Oct. 1, when a previous extension of the higher limits expired.
 
The action, which advocates said was needed to maintain support for the housing market during a time of economic stress, also raises lesser FHA mortgage limits in many areas where the $729,750 does not apply.
 

Limits on smaller mortgages also raised

 
Most areas designated as high-cost by HUD, the FHA’s parent agency, have mortgage limits well below $729,750 but higher than the $271,050 standard limit that applies in about 40 percent of the country. When the absolute upper limit was rolled back to $625,500 on Oct. 1, those areas saw their loan maximums rolled back as well, many of them significantly.
 
For example, Madera County, Calif. saw its loan limit rolled back from $425,000 to the FHA standard limit of $271,500. Frederick County, Virg., near Washington, DC, saw its maximum cut from $475,000 to the FHA standard limit, a cut of more than $200,000. Many other areas remained above the FHA standard, but still saw their maximums reduced by $50,000-$100,000 or more.
 
The higher loan limits were enacted as a temporary measure meant to boost the housing market following the 2008 financial crisis. Those higher limits expired Oct. 1, but the new legislation restores them and extends them through 2013.
 

Fannie Mae, Freddie Mac excluded

 
The extension does not apply to mortgages backed by Fannie Mae and Freddie Mac, whose loan limit maximum also fell back to $625,500 from $729,750 after a temporary increase expired Oct. 1. A measure to include Fannie and Freddie in the extension was added by the Senate, but rejected by the House and did not make it to the final bill.
 
Fannie Mae and Freddie Mac’s standard limit for most parts of the country is $471,000, so the rollback doesn’t affect the mortgages they can back quite as much as the FHA rollback was affecting those loans. The exclusion of Fannie Mae and Freddie Mac from the extension reflects the animosity that many in Congress feel toward the two lenders, which had to be bailed out by the government following the market collapse of 2008 and remain in government receivership.

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