The stimulus bill, The American Recovery and Reinvestment Act passed Congress on Friday and is to be signed by President Obama on Tuesday, February 17th. The Bill does mention the FHA, Freddie Mac and Fannie Mae, the government lending bodies. One of the things the Bill does for these organizations is to raise their lending limits. In 2008, lending limits were raised significantly to allow the FHA to step in and help more people facing foreclosure. Those levels reverted back in 2009. The Bill pushes the limits back to the 2008 level. This means more funds are available for these banks to aid those purchasing homes.
What Do New Limits Do?
There are several things that this new higher limit offers to the mortgage industry. First, by raising the limit, there is more money available to these organizations to purchase loans. This means that when Joe Smith comes to purchase a home, and would like FHA backing on that loan, he can get it because the funds are available to allow for this.
As you know, the FHA allows individuals to get a lower interest rate when borrowing money because it gives the lenders an added insurance that the loan is secure to them. If the borrower with an FHA loan fails to make payment, the property is foreclosed on, but the loan holder can file a claim with the FHA to be reimbursed some money. It works very much like an insurance policy for the lender. Because of the lessoned risk, the lender offers a lower interest rate to the borrower. In short, it aids each body involved.
There are other ways this new higher limit on Freddie Mac and Fannie Mae will. Because it does free up some of this money, more people will qualify in all likelihood for these home loans. With better qualification numbers, more homes can be purchased. People can afford to purchase a home again with the lower interest rate. In turn, more properties that have been sitting on the market or even vacant can be sold. In other words, by raising these limits, the government is aiding in reducing inventory of available housing. This will give cities back their property taxes and aids in boosting other home values throughout the area.
The overall process improves the liquidity of the mortgage market as a whole. Many economists blame at least part of the economic downturn on the failure within the housing market. By restoring some stability here, it could also help to restore some of the value in housing and the markets as a whole.
What Does It Mean To You?
As you consider the Bill and what is included in it, one thing you may want to consider is your own ability to obtain a mortgage and to purchase one of these homes. Not everyone will qualify for a home loan through this program, but far more money is available to help more people to qualify. If you have been considering purchasing a home, but where not sure if you could, or should do so, there benefits of these increased limits makes now an ideal time.
The benefits of having an FHA loan are immense and it should not be overlooked by anyone who is looking for an opportunity to buy a home. Keep in mind that you will still need to meet income and credit qualifications to obtain an FHA loan. If you have been thinking about this type of loan opportunity, take the time to talk to an FHA loan specialist to find out if you qualify for the loan.