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HUD raises real estate loan limits

January 4, 2005

FHA will now insure mortgages up to $312,895 in high-cost areas


Inman News

Housing and Urban Development Secretary Alphonso Jackson today announced that the Federal Housing Administration (FHA) has increased its single-family home mortgage limits by more than 7 percent from last year.

Effective Jan. 1, 2005, FHA will insure single-family home mortgages up to $172,632 in low-cost areas and up to $312,895 in high-cost areas. The loan limits for two-, three- and four-unit dwellings also increased. The FHA is sending letters to thousands of mortgage lenders and brokers to make them aware of the higher rates that can help families.

Last year, the loan limits were $160,176 in low cost-areas and $290,319 in high-cost areas. Five years ago, the limits ranged from just $121,296 to $219,849. These levels were below the cost of many homes in many communities. As a result, families who needed FHA mortgage insurance to qualify to buy a home were effectively locked out of the process.

Low-income and first-time home buyers are attracted to FHA-insured loans because the agency requires only a 3 percent down payment.

The new loan limits are part of an annual adjustment HUD makes to account for rising home prices. Under federal law, loan limits are tied to the conforming loan limits of Freddie Mac and Fannie Mae, federally chartered corporations that buy and package mortgages. Higher FHA loan limits don't cost the government any money, because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA insurance.

The increases will also benefit senior citizens who qualify for FHA-insured reverse mortgages. Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling them. Homeowners can select a lump-sum payment, monthly payments or tap into a line of credit. No repayment is required as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

HUD is a federal agency that implements housing policy.

Copyright 2005 Inman News



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