Loan Size on FHA Mortgage Loans Will Be Increased

Here's what we know so far:  There will be an FHA modernization bill that passes this year.  The proposed bill is bouncing back and forth between the House and Senate.  Once thing is for sure, or as sure as we can be at this time, the FHA mortgage loan limit will rise to 125% of the median home price with a cap of $730K  This will have a bigger affect on areas of the country that don't utilize FHA to a great extent at the moment-Areas such as the two coasts which have more expensive housing.  FHA mortgages price better than conventional jumbo loans.  This can make that big house more affordable.

In Minnesota, our average home is just over $200K.  At the same time, this new FHA loan limit will help as it will bring in another financing option to consider.  With regards to refinancing, this might prove to be extremely advantageous.  FHA allows you to refinance up to 97% of a homes value.  Unlike conventional loans, the mortgage insurance-called MIP( mortgage insurance premium) is not predicated on loan to value or credit scores.  For this reason, I could see many people with conventional loans refinancing into an FHA loan in order to get a lower payment.  This will also help on reverse mortgages.  If the limit is increased, people can do larger FHA reverse mortgages in place of conventional reverse mortgages.  So the big question under the new law is how big will the new FHA mortgages be allowed in Minnesota. 

Some sticking points revolve around the down payment requirement with FHA. Will they allow a zero down product.  Fannie Mae and Freddie Mac allow zero down with programs such as the Flex 100, My Community and Home Possible.  FHA may create a similar program.  The lower mortgage insurance with FHA will make a dramatic difference in the housing payment when all the other options are compared side by side.

There are a couple of other points of contention, such as down payment assistance and bonding requirement vs. net worth requirement for mortgage brokers that want to offer FHA loans.  These points are being fine tuned. The future for FHA loans looks very bright indeed. 

To find out more about FHA mortgages and the FHA Secure Mortgage program, visit our website  and specifically our FHA page