Senate Passed Loan Limit Extension Amendment
U.S. lawmakers moved Thursday, November 17, 2011 to increase the maximum size of FHA loans that are guaranteed by the Federal Housing Administration to $729,750. The U.S. Senate has passed an amendment that raised the Federal Housing Administration loan limits back to 125% of the local area median home price (from the current 115%) and raised the high-cost cap to $729,750 (from the current $625,500) for one unit residential properties insured by FHA through December 31, 2013.
However, Fannie Mae and Freddie Mac conforming loan limits for conventional mortgages stay at $625,500 as of October 1, 2011. The maximum conforming loan limits for secondary mortgage market companies Fannie Mae and Freddie Mac also expired at the end of September 2011, but lawmakers did not include a restoration of those limits in the bill. As a result, conforming loan limits will remain at 115% of the area median home price, up to $625,500. The Senate voted to approve the bill Thursday evening, November 17, after the House voted earlier in the day.
- 1 – UNIT $625,500
- 2 – UNIT $800,775
- 3 – UNIT $967,950
- 4 – UNIT $1,202,925
FHA guarantees loans to buyers with down payments as low as 3.5%. Conforming conventional loans require 10%-20%+ downpayment to qualify for financing. Non-conforming, so called jumbo, conventional mortgage loans are available at higher interest rates and require larger downpayment.
The move by Congress gives borrowers seeking loans between $625,500 and $729,750 in pricey markets two options.
- They can take out “jumbo” loans that carry higher interest rates than those backed by Fannie and Freddie and require down payments of at least 20%.
- Or, they can take out an FHA loan, which allows for lower down payments but charges insurance premiums that add to borrowers’ costs.
In the past four years, as private lenders have pulled back from the mortgage market, the FHA’s market share has swollen. It backed one third of mortgages used to finance home purchases last year, up from around 5% in 2006. The FHA doesn’t make loans but insures lenders against defaults on mortgages that meet its standards.
NOTE: Always contact your lender for details.
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SOURCE: National Association of REALTORS