New FHA Loan Limits, How Will They Affect REIs?

The Federal Housing Administration recently announced a reduction in high-cost area loan limits. Due to the government’s increased effort to pull out of the housing market, this reduction is their next step.Back in 2008, when financial markets were significantly depressed, the economy was on the verge of recession so here came  the FHA as the new outlet to support a frail housing sector.
A lot has changed since then though. Unemployment has dropped, job growth, while still bleak, is improving, and  real estate is once again in demand with home prices on the rise. The FHA has accomplished its goal of helping to boost the housing market. Now the government wants to minimize its exposure to bigger loans.

The FHA loan limit reduction will  mainly affect home buyers in higher-end properties.  Homebuyers who once could buy with less capital will now have to invest more cash into the deal or buy less house. If you are investing in those higher end areas, as are many according to recent reports, this is good info to know. Some of these changes are particularly shocking to the so called “Sand States”  that are still recovering from the housing bust and relying on the flipping houses market to bring them back. For example, in Las Vegas, the FHA loan limit will drop from $400,000 to $287,500 on Jan. 1. The Fannie Mae loan limit will remain at $417,000.

Here are some of the changes  to FHA Loan Limits that Part-Time REI thinks flippers should pay attention to.

1. Your Mortgage Limits Will Be Reduced: Most counties will see the maximum loan limits decrease, on average, by $67,250 beginning January 2014.  In fact there are 146 counties that will experience declines of 20% or more.  FHA has offered no explanation for these significant decreases.

2. Get Your Credit Score in Order: You’ll need at least a 700 credit score to sit at the big kids table. The best terms and rates will go to those with 740 scores or better. One of the first to do’s on your list of getting started in to make sure you know where you stand on your credit. This will greatly affect how much and from whom you can borrow money. There are many free outlets to check your credit score.

3. A 20% Down Payment May Be Required: No longer will homebuyers on the higher-end market be able to purchase a home with less than 20 percent down if the loan is not conforming high balance or FHA. In other words, 20 percent down is going to be the new normal in most markets for majority buyers. Here also keep in mind that many investors simply do not allow for mortgage insurance on larger loan sizes.

For a comprehensive list of the FHA new loan limits please refer to this link from AOL Real Estate.

Link to press release from HUD http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-184

More resources:

http://www.fha.com/lending_limits

http://www.realtor.org/articles/new-fha-loan-limits-for-2014

To learn more about Part-Time REI visit us at http://part-timerei.com/

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Erik Hitzelberger has been Real Estate Investor since 2007. While learning the ropes in the market down-cycle, he now teaches others how to use his systems and leverage other people’s expertise to achieve their own goals.

Erik Hitzelberger – who has written 194 posts on Part Time REI.

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