- In low-cost areas, the FHA will insure loans up to $271,050.
- The FHA will insure loans up to $729,750 in costlier parts of the country.
- FHA loan limits are set to decrease on October 1st, 2011.
Since the Banking Crisis in 2008, FHA loans Have Been the Only Viable Option for Many Home Buyers.
The FHA, created during the Great Depression, insures mortgages that meet its guidelines but does not originate loans. Historically, FHA loans were hard-to-obtain loans for low-income consumers with flawed credit histories and small down payments. FHA loans tended to be more expensive than commercially insured mortgages.
Since the banking crisis in 2008, FHA loans have been the only viable option for many people, and FHA loans now account for a much larger percentage of all mortgages. In 2005 and 2006, at the height of the housing boom, only 1.8% of all mortgages were FHA -backed. That number jumped to 17.1% in 2009. In 2011, Fannie Mae, Freddie Mac and the FHA buy or insure about 97% of residential mortgages.
A potential drawback in the FHA loan program is the dollar-limit the FHA places on loans. These limits are set county by county. In areas that experienced high property-value appreciation, the FHA loan limit may not be enough to purchase the home the borrower desires.
In the lowest-cost areas, the FHA will insure loans up to $271,050, though that number can rise to $729,750 in the costliest parts of, say, New York or California. That number will drop on Oct. 1, 2011 to $625,500.
To learn the FHA loan limit for you, go to the interactive FHA Mortgage Limits page, which allows you to look up the FHA mortgage limits for your area.
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