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Will you Benefit from the New FHA limits?

The US Senate passed an expanded version of HR 5140 - an economic stimulus package that includes a temporary increase in the conforming loan limits from $417,000 to as high as $729,750 in high cost areas. It is expected to be passed by the House and signed into legislation. The emphasis here is on temporary.

So how does this affect you and the markets you are in? I'm a member of the CMPS Institute and they have released some quick guidelines;

"The two things you must know in order to determine if you are in a high cost area:

1. You must know the formula. If 125% of the local area median home price exceeds $417,000, the temporary loan limit would be that 125% of the median home price with a cap of $729,750.

2. You must know the median home price in your area. According to HR 5140, the Secretary of Housing and Urban Development will publish the median house prices within 30 days. We contacted the Public Affairs office of HUD directly to ask if there is anything definitive to reference in the interim, and they said, "no." The Wall Street Journal published median house prices recently, and you may want to reference this information to get an idea of which areas will exceed the $417,000 limit. The median housing prices can be found in the second graphic on this web page. In order to see the median housing price in descending order, click on Price ($) in the chart. "

As an example, in my area, Portland OR, the median home price is $297,629. Using the formula, we would arrive at the following

Median Home Price:       $297,629
Temporary Factor:               125%

Temporary Loan Limit:   $372,036

In our case, the old limit of $417,000 stays in effect.

If the HUD uses current published prices, the median Home Price is going to need to be at least $335,000 for you to be able to refinance a Jumbo loan into a conforming loan.

My 2 cents: While this will help some of the hardest hit areas, it still falls short. Areas with a lot of low priced home skew the median home price. In every market there are pockets of areas that are more expensive then others. It also doesn't necessarily account for the average income in an area. We have a lot of high priced home that won't move, in large part due to Jumbo pricing and the inability to get 2nd mortgages.

Anyway, for those of you that will see relief, go to work!!

Let me know how these changes affect you.

Update: Andy Perry caught an error in my calculation so I corrected it. Thanks Andy

Posted by Larry Morris, CMPS, Newberg Oregon on 02/08/2008 04:19 PM

Comments (11)

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11 Comments on Will you Benefit from the New FHA limits?

So let me see if I understand this. If I own a home that cost $650,000 and I got in that home on an arm that is about to adjust if my area qualifies I can refinance into an FHA. Yea!!!

The thing is I have to now qualify for this loan and before I did not qualify thats why the lender put me in the arm in the first place.

With that scenario it may not help many people who are about to be in big trouble in my area!

02/08/2008 05:40 PM

by Endea Thibodeaux, CLHMS, RECS Real Estate Auctions (Auction2Sell, LLC)

Endrea. Not necessarily so. These are the FHA temporary home prices, but the loans do not have be be orginated as Full Document FHA loans. This now means that any loan that previously was limited to the $417,000 cap now might be doable at a higher loan limit. This opens the doors to Stated Income, No Ratio and even a few No Doc loans.

But yes, you still do have to qualify under much stricter guidelines. But that said, if you can document your income, the FHA is doing some amazing things. This just opens the door for some who otherwise didn't have the opportunity.

02/08/2008 05:52 PM

by Larry Morris, CMPS, Newberg Oregon (NW Lending Solutions)

Well that is good to know. Thanks for clarifying that for me.

I think the stricter guidelines are going to be the hurdles.

02/08/2008 06:03 PM

by Endea Thibodeaux, CLHMS, RECS Real Estate Auctions (Auction2Sell, LLC)

So what does this mean for first time home buyers? Does this mean it will now be harder to buy if everyone is refinancing? Should we buy before or after the bill gets signed by P-Bush? How long until this hits the economy?

02/08/2008 07:28 PM

by Maria

Good question Maria, It really will depend on your market. If you are in a market below the new limit, there will really be no effect due to this Bill. If you are in one of the high cost areas, SF, LA... , then it will actually help you get into a home as it will raise the conforming loan limit from $417,000 up to as much as $729,750.

Of course, there will be homeowners who decide to refinance instead of sell. This could have a localized affect on home prices, but there will still be plenty of great properties for sale. As Endrea, pointed out, borrowers still have to qualify for the loan.

It appears that the bill could go into effect fairly quickly, but who knows how long until HUD decides what the median prices actually are. Who's numbers will they use or will they create their own?

Once it does, watch the loan numbers sky rocket in the highest markets.

So, a long winded answer to your real question, if you are in a high cost market, and have a home picked out, it might make sense to make an offer with a close date far enough out to take advantage of the new limits. If you are not in a high cost area, don't worry about it...

02/08/2008 07:40 PM

by Larry Morris, CMPS, Newberg Oregon (NW Lending Solutions)

Hi there,

Thanks for the clarification. So are your soures telling you that this will be the plan as far as the "loan limit" aspect of the stimulus pakage goes? It might be too early to say but I am curious if it is too early to count on this as done deal or if it could completely change.

Thanks!

A Perry

02/11/2008 01:43 PM

by andy perry

Andy - I think it's pretty much a done deal. The question though is how they calculate the median income. Will they create their own? Will they break it down so that there is more flexibility? My guess is that in the essence of time they will use an existing source and move forward with elections..... I really believe that they are lees concerned with how it really helps on the streets then the appearance that they are doing something.

02/11/2008 01:52 PM

by Larry Morris, CMPS, Newberg Oregon (NW Lending Solutions)

Does the new legislation allow for higher fha limits in low cost areas? I thought the legislation raised the amount from 48% to 65% in low cost areas?

02/12/2008 09:17 AM

by mgregory

Mgregory- I'm not sure if that is in the scope of this legislation. Are you referring to Debt to Income ratios being increased?

02/12/2008 05:52 PM

by Larry Morris, CMPS, Newberg Oregon (NW Lending Solutions)

I am wondering if this new fha might help us to get a new mortgage. Due to the high appraisals and misleading information we got on our home we had refinanced more then the home was worth in an effort to keep our construction business a float. This lead to us getting in over our heads and long story short we sold the property before we were in trouble. We used what little money we made to pay off debt so we have no down payment money. We also were forced into bankrupcy due to the poor economy which distroyed our construction business. So right now we are debt free but our credit is damaged. This new fha gives us some hope for a new start if it will work for us. Do you think we would be candidates for this new loan?

03/09/2008 11:58 AM

by bcksdal

It's hard to say. Give me a call if you would like to talk about your situation. 1-888-660-2842.

03/09/2008 04:06 PM

by Larry Morris, CMPS, Newberg Oregon (NW Lending Solutions)