FHA New Loan Limits

Now is a great time to buy or refinance a home. The FHA has been working with the federal government to try to help homeowners purchase and retain their homes through programs like FHA Secure. FHA Secure was enacted by the government in order to allow people a way to refinance their homes at lower interest rates and avoid default and foreclosure if they have adjustable rate mortgages. The FHA has saved many homeowners from foreclosure by allowing them to refinance even if they were in default with their current home loan.

Now the FHA has gone one step further to come to the aid of homeowners as a result of the Economic Stimulus Act of 2008. This act allows for the FHA loan limits to be temporarily increased in order to help stimulate and stabilize the U.S. housing market.

Here are some facts on how the new Economic Stimulus Act of 2008 is allowing the FHA and HUD to help more homeowners:

This act went into effect as of March 6, 2008 and allowed the FHA to increase the loan limits for people who qualify for guaranteed loans through the FHA and people who are refinancing their loans through the FHA.
Before this act the FHA loan maximum limit was $362,790, and now those limits have been increased to anywhere between $271,050 and $729,750.
The amount that a borrower can qualify depends on the geographic location of the home they are trying to purchase. The maximum of $729,750 applies to large metropolitan areas where the cost of living is higher and therefore the cost of affordable housing is higher.
The FHA will determine the limit for specific geographic areas by looking at commercial data and government data that will indicate the price of housing and affordable range for each area.
This loan limit increase will allow the FHA to offer loans and refinancing options for close to 240,000 more homeowners and potential buyers who want to purchase their homes with an FHA guaranteed loan.
This helps pre-existing homeowners refinance their current loans up to 125% of the value of the home in order to include closing costs and fees in their loans so that they can refinance down to an affordable interest rate.
This act also helps homeowners in areas where their home value has dropped and they may owe more on their home than it is currently worth. For homeowners who live in an area of economic decline where the value of homes have been decreasing, previously refinancing may not have been an option because lenders want to see some equity or value in the home before they will refinance to a lower interest rate. However, with the new act the FHA is allowed to qualify homeowners for up to 125% of the value of their home which means they are now more likely to qualify for a refinance, even if the value of their homes have decreased.
This act is a temporary measure. The FHA has approval to fund these higher limits for a limited time. Unless the act is extended, it is only in effect until December 31, 2008.

If you are a homeowner or plan to purchase a home you should contact an FHA approved lender. The FHA's new guidelines can help existing homeowners refinance into a lower interest rate loan with better terms, and they can help new home buyers get an affordable loan for whatever area they are looking to buy a home.