FHA Loan Limits Increases Due To Rising Home Prices

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FHA Loan Limits Increases Due To Rising Home Prices

This BLOG On FHA Loan Limits Increases Due To Rising Home Prices Was UPDATED On May 19th, 2018

The Federal Housing Administration  (FHA), a governmental agency under the United States Department of Housing and Urban Development (HUD), is a governmental agency that insures mortgage lenders in the United States against mortgage loan borrower defaults.

  • For FHA to insure and guarantee borrowers who default on their FHA Loans, lenders needs to follow FHA mortgage lending guidelines
  • Or else FHA will not insure the mortgage lender against default on a FHA loan
  • A home buyer can qualify for a FHA loan with as little as 3.5% down payment with less than perfect credit and high debt to income ratios

FHA Minimum Credit Score Requirements

The minimum credit score required to qualify for a FHA insured mortgage loan with a 3.5% down payment is 580 credit score:

  • Borrowers with credit scores between 500 and 579 can also qualify for a FHA Home Loans
  • However, a 10% down payment is required
  • Any borrower with credit scores under 620 here are the DTI AUS Approval Requirements:
    • the maximum debt to income ratios is normally 43% debt to income ratios to get an approve/eligible per Automated Underwriting System
    • If credit scores are greater than 620, debt to income ratios over 46.9% front end and 56.9% back end is normally allowed to get AUS Approval
    • These DTI can go higher with compensating factors AUS recognizes such as substantial reserves
  • Home Buyers can qualify for a FHA Loans after the following:
    • two year waiting period after discharged date of Chapter 7 bankruptcy
    • three years after the recorded date of foreclosure and deed in lieu of foreclosure
    • three years after a short sale reflected on the HUD’s settlement statement
  • Buyers can also qualify for a FHA loan with outstanding collection accounts
  • Do not to pay them off as well as charge off accounts
  • However, most lenders want to see timely payments for the past 12 months
  • One of two late payments in the past 12 months is not a deal killer
  • But is frowned upon by AUS and lenders
  • Overdrafts in the past 12 months can be deal killers
  • Mortgage loan originator should not be submitting application for processing and underwriting if he or she notices overdrafts in bank statements

HUD Releases FHA Loan Limits

HUD has released the FHA Loan Limits.

  • FHA Loan Limits for 2018 to $294,515
  • For high cost areas like most parts of California, FHA Loan Limit is capped $679,650 for single family homes
  • For other parts of the country where it is considered low cost areas the FHA Loan Limits have increased to $294,515

How Does HUD Calculate FHA Loan Limits?

The Federal Housing Administration re-calculated the FHA loan limits every year.

  • The Federal Housing Administration calculates the FHA Loan Limits based on the percentage figures of the country’s conforming lending limit
  • Based on the conforming lending limits, The Federal Housing Administration minimum national lending loan limit is set at 65% of the country’s conforming lending limit
  • The floor of the lending limits are areas where 115% of a home median price is valued at less than 65%  of the country’s conforming lending limit

High Cost Areas And FHA Loan Limits

With areas that is considered high cost areas by the Federal Housing Administration are parts of the country where the lending limit surpasses the floor.

  • The highest FHA lending limit cap is set at 150% of the country’s conforming limit
  • In regions, highest values of homes, where 115% of the home median price surpasses 150% of the conforming lending limit, the maximum lending limit will stay at $150% of the conforming lending limit

FHA Loan Limit On Reverse Mortgages

HUD, has announced FHA Loans Limits on HECM reverse mortgage loans to $679,650 on higher loan amount areas. The current FHA Loan Limits on HECM is set at $626,150. The increase Reverse Mortgage Loan Limits took effect January 1, 2018 and is effective until December 31st, 2018.  This effective increase is 150% of the national conforming loan limit of $453,100.

Age Versus FHA Loan Limits On Reverse Mortgages For Seniors

  • 65 years old $338,465
  • 70 years old $360,214
  • 75 years old $377,205
  • 80 years old $402,352
  • 85 years old $436,336

The above illustration shows a 65 year old reverse mortgage borrower would be eligible to borrower $338,465 for 2018 while a 85 year old borrower can borrower can borrower $436,336. The Maximum Claim Value for FHA Reverse Mortgage on high cost areas is capped at $679.650. Maximum Claim Area, also referred to as MCA is the lesser of a home appraisal value or the maximum FHA Loan Limits.

The MCA is the lesser of a home’s appraised value or the maximum FHA lending limit. If a home is appraised at $1,000,000 the maximum FHA Loan Limits on a high cost area would be capped at $679,515. This would be the MCA

  • FHA Reverse Mortgages are Home Equity Conversion Mortgage and is often referred as HECM
  • Reverse mortgages are available only to home owners who are at least 62 years of age and have equity in their homes

Alternative Loan Program With Higher Loan Limits

As mentioned earlier both the Federal Housing Finance Agency (FHFA) and HUD has increase loan limits for two years in a row due to rising home prices. All areas in the United States has seen rising home prices. Home Buyers who are interested in buying home that surpasses the FHA Loan Limits in a particular county can see if they can go conventional.  FHFA increased conforming loan limits to $453,100. If borrowers do not qualify for conventional loans, they can explore non-qm loans where there is no loan limits. However, non-qm loans does require 10% to 20% down payments. Mortgage rates are higher on non-qm loans, however, there is no private mortgage insurance required. The amount of down payment required is dependent on borrowers credit scores.

Please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

This blog has been updated on May 20th, 2019. The conforming loan limit for conventional loans for 2019 is $484,350. FHA Loan Limits for 2019 has been increased to $314,327.

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