Starting on New Year's Day, high-value homebuyers will have to scale their ambitions back a bit if they plan to use an FHA mortgage.

The maximum amount permitted on an FHA home purchase loans is being rolled back on Jan. 1, down to $625,500, down from the current ceiling of $729,750. It's estimated the new limits will reduce the maximum loan size in some U.S. 650 counties that are deemed to have pricey housing markets.

The FHA's standard loan limit in the rest of the nation will remain unchanged at $271,050. The change will affect about one-fifth of the nation's counties.

"As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play," said FHA Commissioner Carol Galante, in announcing the changes. "Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved."

Been extended several times

The higher limits for select areas were established under the Housing and Economic Recovery Act of 2008 as a way to maintain the availability of mortgage credit as the housing market was collapsing. The higher limits were originally scheduled to expire in 2009 but have been extended by Congress several times.

For individual high-value counties, the revised upper loan limits are based on 115 percent of the area's median home value, down from 125 percent currently. The limits apply to FHA single-family home purchase mortgages applied for on or after Jan. 1. Higher limits are still available for two to four-unit properties.

The limits do not affect FHA Streamline Refinances, which will continue to be available to FHA borrowers regardless of their loan balance. FHA Home equity conversion mortgages (HECMs), commonly known as reverse mortgages, will continue to have a maximum claim amount of $625,500.

The new FHA limits do not affect mortgages guaranteed through other government-affiliated programs, such as Fannie Mae and Freddie Mac mortgages or VA loans.

Published on December 9, 2013