Should You Be Worried About Locally-Falling FHA Loan Limits?

Posted by Jay Kalinski on Tuesday, December 10th, 2013 at 2:13pm.

Just last month local markets were relieved that the Fannie Mae and Freddie Mac maximum conforming loan limits would remain unchanged in 2014 at $417,000.  Last week, however, the Department of Housing and Urban Development (HUD) announced that the national maximum loan limits for 2014 Federal Housing Administration (FHA) loans will drop from $729,750 to $625,500 next year.  These loans are insured by the FHA and are designed to allow low-to-moderate income borrowers to purchase homes with small down payments (which can even come from gifts or grants.)

Locally, the maximum FHA loan limits are set to fall substantially.  Boulder County will see its FHA loan limit fall from $460,000 to $408,250 while both Broomfield and Jefferson Counties’ limits will fall from $406,250 to $391,000.  Most alarmingly, nearby Weld County’s FHA limit plummets to the absolute minimum of $271,050 in 2014, down from the current $417,500.

Not worried?  Consider the following hypothetical.  Today in Boulder County, a person who can qualify for an FHA loan with a $17,000 down payment, could buy a $485,000 home.  Next month, that same person could only use an FHA loan to buy, at most, a $425,000 home.  That is a purchase power loss of $60,000, for reasons unrelated to the buyer’s personal financial situation.  By the way, the average sale price of a home in Boulder County has risen from $449,982 in October 2012 to $494,603 one year later.  In the city of Boulder, the average home price is currently almost $750,000.

The FHA loan limits are based on median home prices in each county under the Housing and Economic Recovery Act (HERA), which had been held at bay by Congress since 2009 to help with the housing market recovery.  The FHA is scaling back the size of its loans to reduce its share of the mortgage market.  "As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play," FHA Commissioner Carol Galante, stated Friday. "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."

What this means for the local real estate market is that some people who would be able to buy a home this year using an FHA loan may be priced-out of the market next year due to locally-rising home prices.  This will adversely affect sellers, too, particularly those whose homes will be on the market in the price range that used to be covered by the FHA loan limits but are now above them.  One spot of good news, if sign a contract by December 31, 2013 to purchase a home (and get an FHA “case number”), then you can take advantage of the current FHA limits even if you close in 2014.

The bottom line, if you’re a potential FHA home buyer, there’s no time like the present!
Jay Kalinski, Esq. 
RE/MAX of Boulder, Inc. 
2425 Canyon Blvd., #110
Boulder, CO 80302
303-415-2268 (Direct) 

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