FHA loan limits set to fall come Oct. 1

Beginning Oct. 1, homebuyers may find that getting a Federal Housing Administration-insured mortgage is more difficult than it has been in recent years, but only if mortgage professionals nationwide don’t have their way.

Unless some sort of Congressional action preventing the change takes place, the FHA will revert back to pre-2008 loan limits, affecting 669 counties nationwide, including Larimer and Weld.

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Currently, Larimer County’s loan limit is set at $312,500, and Weld County’s is $417,000. The loan limit for both counties will drop to $271,050, a difference of $41,050 for Larimer County and $146,450 for Weld County.

With an FHA loan, borrowers must make a 3.5 percent down payment. (Federal regulators are still debating what constitutes a “reasonable” down payment for residential mortgages under the Dodd-Frank law, with the public comment period extended until Aug. 1.)

In an attempt to help those with bad credit and to bolster the suffering housing market, FHA loan limits were raised temporarily by the economic stimulus act in 2008, allowing FHA-eligible lending institutions to provide insured loans at 125 percent of the median house price in a given area.

The use of the median home price rather than an average home price accounts for the discrepancy between the modified limits in Larimer and Weld counties, according to Gene Humphries, division president for Cornerstone Mortgage in Fort Collins.

Mortgage professionals, however, are working to prevent the change by supporting a bill introduced earlier this month in the U.S. House of Representatives by Reps. John Campbell, R-Calif., and Gary Ackerman, D-N.Y., that would keep the current loan limits through fiscal year 2013. The Congressmen are concerned that the housing market is too unstable to consider a reduction in loan ceilings that could increase costs for borrowers, and feel this would give it more time to recover by continuing to allow more people to purchase homes with the help of FHA-insured mortgages.

Lender associations, such as the Mortgage Action Alliance, are calling upon their members to petition members of Congress to support the legislation, House Resolution 2508, which has been referred to the Committee on Financial Services.

The MAA warns in a call to action to its members that if the temporary limits are allowed to expire on Oct. 1, “obtaining financing will become more difficult and expensive for borrowers, which in turn would inhibit home purchases or the ability to refinance into more affordable mortgages.”

Not a whole lot of pinch

According to Housing and Urban Development regional administrator Rick Garcia, the average loan in 2010 and year-to-date in 2011 has been under the temporary limits in both Larimer and Weld counties, so the average buyer is “not going to feel a whole lot of pinch.”

Garcia said that HUD and FHA data show only 5 percent of FHA-insured loans made in 2010 statewide would have been affected if the loan limit had been at the 2008 level. For loans made January through April this year, only 4 percent would have been affected.

Lawmakers in Washington are open to the idea of legislation that will extend the loan limits, according to Humphries, who added that HUD has not yet made clear the “trigger date” for the change.

In other words, potential borrowers will still be able to pursue a loan, but lenders have not yet been informed on where in the mortgage process a borrower must be in order to fall under the new limits, should they become effective on Oct. 1.

Overall, if the change occurs as planned, lenders will not notice much of a difference as the limits shift back to their original form, either, according to Garcia.

“The banking industry has been preparing for the change over time,” he said.

Molly Armbrister covers real estate for the Northern Colorado Business Report. She can be reached at 970-221-5400, ext. 209 or at marmbrister@ncbr.com.