Maximum loan limits on FHA loans are scheduled to change on September 30, 2011. Unless Congress passes legislation authorizing the extension of “high-cost” loan limits, many counties will be subject to lower maximum loan amounts.
FHA loan limits were originally based on 95% of the median home price of a particular county, subject to maximum and minimum limitations for each county. Due to the housing crisis and restricted bank lending, Congress increased loan limits in February 2008. The maximum loan limits were changed again under when Congress passed the Housing and Economic Reform Act (HERA) in mid 2008.
Subsequent to HERA, additional legislation again changed FHA loan limits which are currently set at $417,000, although a temporary limit of $729,750 is allowed in high cost areas for single family homes. The current FHA loan limits expire on September 1, 2011, at which point the maximum loan limit allowed for high cost counties would drop to $625,500.
Each county will be affected differently by the reduced loan limitations based on median home prices. After studying the matter, the FHA expects that loan limits will be reduced in 669 of 3,334 counties. Although many counties will not be impacted at all, certain counties will see large drops in the maximum FHA loan limits unless Congress authorizes the extension of current loan limits.
The FHA website allows potential home buyers to look up what the maximum mortgage limits are for each particular county to assist buyers in their financing plans.
Although a bill has been introduced to extend the current FHA loan limits, the current administration has indicated that they will not support another extension of the loan limits. Buyers who can no longer obtain a purchase mortgage due to lowered loan limits could still be eligible under jumbo mortgage loan programs available at many banks but would be subject to higher down payments and possible higher loan pricing.