I recently received the following question from reader Sandra:

The average home price where I live is $525,000. Will FHA ever raise the loan limits, so that areas that have a higher average price can utilize the program? Also what is the required down payment? I had recenly heard that it was to be reduced from 3% to 1.5%

As for now, FHA loan limits aren’t going to be changing. However, current legislation (HR 1852, which has passed in the House) includes an amendment proposing the loan limit be set at lower of either

  • 125% of the local median home price, or
  • 175% of the national GSE conforming limit

This bill may be combined with a Senate bill, but both seek to increase loan limits to make FHA loans a realistic option for more buyers. As for the down payment, it is still a toss up as to what the agreed-upon change will be. Although nearly all legislators seek to remove the 3% down payment, there is disagreement on whether it should be zero down or the 1.5%, which could be packaged into fees. In my opinion, the 3% isn’t terrible (look where a lot of the subprime borrowers who didn’t put up any cash ended up), but a lower down payment could certainly make homeownership possible for many more Americans. I’d predict that in the next 6 months or so the 1.5% will be the new minimum.

Thanks to Sandra for the question! If you have a question, please leave it as a comment or send an email to admin@fhabook.com

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