One of the ways that many homeowners get help borrowing enough for a home is through loans backed by the Federal Housing Administration. These FHA loans allow home buyers to make low down payments, encouraging home ownership.
However, the FHA won’t back certain loans. If a loan amount is too high, it isn’t eligible for backing. Right now, the FHA sets the limit according to what is normal in specific areas. This means that the maximum you can borrow in a small town is different from the maximum you can borrow in a large city with a higher cost of living. The current highest limit set at $729,750.
FHA Ready to Drop Its Limits
CNN Money reports that the FHA is getting ready to drop its upper limit. Starting in 2014, the largest loan possible will be $625,500. Other counties across the country could also see drops in the upper limits for FHA loans.
With the economy starting to recovery, and the housing market picking up, the need for FHA loans is dropping. During and just after the financial crisis, when lenders were reluctant to let borrowers get new loans, the FHA increased its limits in order to encourage home buying.
Now that the need is starting to pass, and home buyers are better able to afford their mortgages, things are changing. For home buyers, this means that a bigger down payment might be needed. Many lenders are still requiring 5 percent or 10 percent down, and the FHA loan requires a lower down payment than that.
If you are afraid that your mortgage will be too high to qualify for FHA backing, it makes sense to try and qualify before the year ends.