The Federal Housing Authority, or FHA, has announced that they are going to increase mortgage loan limits starting January 1, 2017. Each year the FHA evaluates the mortgage market and makes adjustments to lending limits based on home prices in individual areas. The increase will last the entire year, when the FHA will make another evaluation. Last year, the FHA increased mortgage loan limits, as well. What is significant about this announcement is that the increases are set to affect a broader area than last year.
FHA mortgages are popular because they offer attractive rates for a broad range of credit scores and can be secured for as little as 3.5% down. They do require mortgage insurance, which is an additional fee paid by the borrower.
In areas of high-cost homes, the FHA loan limit will increase up to $636,150 from $625,500. That’s an increase of +1.7%. These increases apply to nearly 3,000 US counties. The FHA’s new mortgage ceiling is 150% greater than the national conforming loan limit of $424,100. Compared to the increase that was applied for the 2016 year, the increases only affected 188 counties. The number of counties affected is a near +1,600% increase.
There were no areas that received a decrease in the mortgage loan limit.
Increasing Home Values
According to a recent article by HousingWire, home values in some areas have been on the rise throughout the year, continuing a five-year trend. In that period, home values have increased +35% nationwide. The increase in home valuations is up +6.2% year-over-year. There are two big reasons that home values have had such a steep increase in value and they both relate back to the Global Financial Crisis of 2008.
When the crisis hit, the bubble burst on the housing market. Home values dropped significantly. The current increase reflects a return to pre-GFC levels. The other reason is that a large number of home builders lost their skilled labor during the recession. Home builders are still struggling to get their output back to meet demand. This means that there is a shortage in houses, particularly starter homes for first-time buyers.
Who is Affected?
What these increases mean for the American borrower is that the FHA lending program is now available for more expensive homes in these “high cost” markets. Home values in many areas have risen considerably over the last year and indeed, the last five years. The FHA is a program designed to assist buyers that do not have a large down payment but would otherwise be suitable to accept a monthly mortgage payment.
For a complete list of the counties that the FHA considers high cost and have been affected by the increased lending limit, click here to go to the Department of Housing and Urban Development’s web page for a complete listing.
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