Higher FHA home mortgage limits announced

Real Estate Weekly, Jan 19, 2000

In a move that will help thousands more families become homeowners each year, Housing and Urban Development Secretary Andrew Cuomo has announced that HUD has begun insuring larger home mortgage loans across the country - up to nearly $220,000 in some area for single-family homes.

Cuomo said that on January 1st, HUD began insuring mortgage loans for single-family homes ran ranging from a limit of $121,296 in communities where housing costs are relatively low, to a limit of $219,849 in areas where housing costs are high. That's an increase from 1999, when HUD insured single-family mortgage loans with limits ranging from $115,200 to $208,800.

The mortgage insurance is provided by the Federal Housing Administration (FHA), a division of HUD.

"These higher loan limits will help create more homeowners, more home construction, more job, and more economic growth," Cuomo aid. "They will transform the American Dream of homeownership into a reality for families across our nation."

The new loan limits are part of a regular annual adjustment HUD makes to account for rising home prices. Under federal law, the loan limits are indexed to the conforming loan limits of Freddie Mac and Fannie Mae - federally chartered corporations that buy and package mortgages. This is the first nationwide increase in the loan limits since January 1, 1999.

HUD also raise the mortgage loan limits for FHA insurance for two-, three- and four-family housing units as follows:

Two family units: $155,232 in low-cost areas to $281,358 in high-cost areas - up from limits ranging from $147,408 to $267,177 in 1999.

Three family units: $187,632 to $340,083 - up from limits of $178,176 to $322,944 in 1999.

Four-family units: $233,184 to $422,646 - up from limits of $221,448 to $401,375 in 1999.

HUD is sending letters to thousands of mortgage lenders and mortgage brokers around the country to make them aware that the higher FHA loans limits can help their customers.

The higher FHA loan limits are expected to help drive the nation's homeownership rate beyond its current record high of 67 percent of all households. Today, 70.5 million American families own their homes - more than at any time in American history, and 8.7 million more than when President Clinton took office in 1993, when the homeownership rate stood at 64 percent.

The higher FHA loan limits will not cost the government any money, because the FHA Insurance Fund is supported by premiums paid by borrowers who receive FHA insurance.

FHA insured nearly 1.3 million home mortgages in 1999 at a value of $124 billion.

Cuomo said the higher loan limits will particularly benefit first-time homebuyers and minority homebuyers. Eighty percent of FHA loans go to first-time homebuyers. FHA insures about 40 percent of all home mortgages to African American and Hispanic homebuyers.

The higher loan limits will also apply to FHA's 203(k) Rehabilitation Program, which offers homebuyers an FHA-insured mortgage to finance both the costs of purchasing and repairing homes in older urban areas.

The increase in FHA mortgage loan limits will also benefit senior citizens. Under the increase, many senior citizens can now qualify for larger FHA-insured reverse mortgages - enabling some individual homeowners to borrow thousands of dollars in additional funds.

Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling the homes. Homeowners can collect a lump-sum payment, monthly payments or tap into a line of credit to get cash when needed. No payment is necessary so long as the homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

By law, HUD cannot insure a reverse mortgage above the local FHA loan limit. Therefore, an increase in the loan limit can increase the value of a reverse mortgage.

FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. FHA insurance guarantees the lender timely payment of principal and interest, in the event the homebuyer defaults on the loan.

Because FHA mortgage insurance protects lenders from losses, it has enabled millions of Americans who would otherwise be locked out of the mortgage market and homeownership to qualify for mortgages.

FHA-insured loans also benefit homebuyers in these ways:

* FHA downpayments of 3 percent are lower than the minimum that many lenders require for non-FHA mortgages. Higher downpayments are a major roadblock to homeownership.

* FHA's requirement for homebuyers credit ratings are more flexible than those set by many lenders for non-FHA borrowers.

* FHA permits homebuyers to use gifts from family members and non-profit groups to make their entire downpayment, while conventional loans generally require homeowners to come up with a portion of the downpayment from their own funds.

* FHA permits a borrower to carry more debt than a private mortgage insurer typically allows.