The Department of Housing and Urban Development (HUD) announced late Friday that the maximum loan eligible for a Federal Housing Administration (FHA) guarantee will be reduced from 2013 levels in a number of areas of the country starting January 1. While the standard FHA loan limit for areas considered to have low housing costs will remain at the current $271,050 level, 650 of the areas deemed higher cost will have their maximum loan sizes reduced.
FHA loan limits are calculated according to a formula prescribed by the Housing and Economic Recovery Act (HERA) based on median home prices. Most of the limits apply on a county by county basis. The new maximum loan limit for high-cost areas will drop on January 1 from $729,750 to $625,500. Loan limits that fall between the standard limit and the high-cost limit will also be affected.
"As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play," said FHA Commissioner Carol Galante. "Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved."
This will be the first time calculations authorized by HERA will be fully implemented. The higher limits that have been in place for the last six years were authorized by the Economic Stimulus Act of 2008 as an emergency measure. Congress had extended the higher limits in subsequent years.
Eighty-one areas are at the new upper limit and four, all in Hawaii, have dispensation to exceed the limit with loans in Urban Honolulu limited at $721,050. Eleven of the highest cost areas are in California with most of the remainder in the greater New York/New Jersey area or in counties in Maryland and Virginia surrounding the nation's capital. There are also a smattering of counties with limits at the $625,500 level in Idaho, Wyoming, Colorado, and North Carolina, mostly in popular outdoor recreation areas.
The mortgage loan limits for FHA-insured Home Equity Conversion Mortgages (HECM) popularly known as reverse mortgages will remain unchanged at a maximum of $625,500 however actual loan limits will be calculated on an individual basis in accordance with the property value, the borrower's age, and current interest rates. Borrowers with existing FHA insured mortgages may continue to utilize FHA's Streamline refinance program regardless of their loan balance.
The Federal Housing Finance Agency announced on November 26 that limits for loans eligible for purchase or guarantee by Freddie Mac or Fannie Mae would remain at 2013 limits for 2014. The standard limit is $417,000; limits in high cost areas range up to $625,000.