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2012 FHA Loan Limits to Fall Soon

August 22nd, 2011

Lenders and brokers have started to brace themselves for reduced FHA limits coming on September 30th.  MBA, NAR and other housing activists agree that lower loan limits will make it tougher on FHA financing in states with high cost regions. Many FHA loan companies have begun using the reduced FHA loan limits because in most cases the loan process takes 30- 45 days to close.  The common misperception is that it only applies to high-end homes, he said.

2012 FHA loan limits continues to be a highly debated a subject on Capitol Hill.  HUD lifted nationally limits from $417,000 to $625,000 in February 2009 and the FHA limits were extended last year until October 1st, barring action from Congress. The limit was raised from 115% of each county’s median home price to 125% of the median, and is now coming back to 115%. That’s an average reduction of $68,000, making an estimated 5 million homes ineligible for government sponsored-enterprise financing, he said.

FHA is poised to lower loan limits in the country’s high cost regions while limits would remain unchanged in most other parts of the nation. Lower FHA mortgage limits will affect less than 5% of the markets nationally, but it will do doubt have a ripple effect for the struggling housing sector.

Zach Lowe, spokesman for the Washington, D.C.-based Coalition for Sensible Housing Policy, said FHA insurance assists people who can’t afford a large down-payment needed to qualify for traditional home purchase loans. In 2011, the FHA was insuring mortgages up to $729,000 nationally, or 125 % of area median home prices.”

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