Thu10302014

Business & Real Estate

Heads-up on possible changes to FHA loans

Photo Town Crier File Photo Unless extended, changes in limits for FHA loans may make it tougher on homebuyers.
Silicon Valley Association of Realtors Unless Congress extends the expiration deadline, Federal Housing Administration (FHA) loan limits will drop beginning Oct. 1, resulting in changes that could affect prospective borrowers and the state’s housing market. FHA loans offer borrowers competitive rates and terms, and require only a 3.5 percent down payment.


Allowable debt ratios are higher than the typical debt-ratio limits imposed for conventional loans. In addition, there are no income limit qualifications, so more people can qualify for them.

To help spur the home-buying market, Congress raised the loan limit amount through Sept. 30. Lawmakers have not come to an agreement on whether or not to extend the loan limit. If the loan limit drops, many California homebuyers seeking larger mortgages will have to apply for conventional or jumbo loans, which may be subject to higher interest rates and down payments.

Prospective buyers should be aware of the following if the loan limits are reduced:

• Lower loan limits. The conforming loan limit determines the maximum mortgage amount that FHA, Fannie Mae and Freddie Mac can buy or guarantee. If a buyer wants to stay under current loan limits, he or she should purchase now and close by Sept. 30.

• Drops by county. Under the new FHA loan limits, some counties will see significant drops in their loan limits. Santa Clara County will experience a $104,250 drop.

• Jumbo loans. The current FHA loan limit is $729,750. After Oct. 1, that limit may drop to $625,500. Mortgage loans higher than that amount will be considered nonconforming jumbo loans, which typically have rates that are 0.875 percent to 1.5 percent higher than conforming rates, depending on the loan product, and require higher down payments.

• More stringent requirements. FHA loan requirements may allow for lower credit scores.

The Silicon Valley Association of Realtors provided information for this article. Send questions to Rose Meily at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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