Upper Limits on FHA Loans Reduced for 2014

California's high cost market has allowed for the upper FHA loan limits for a single unit (i.e., single family home or a condo) to be set at $729,750.  For certain buyers who otherwise qualified for a higher monthly loan payment, but for other reasons qualified for an FHA loan instead of a conventional loan, this was a great advantage.

But as of Friday, December 6th, that is changing.  The high cost areas in the country with those upper limits are now having new purchase loan limits reduced to $625,500 when the higher loan limit expires as of December 31, 2013.  Nationally, about 650 counties will be affected by this change. In California, there will be 16 "high-cost" counties affected, including Los Angeles and Orange Counties.  Two, three, and four-unit properties will still have respectively higher loan limits. If your loan is currently in process before December 31 and an FHA case number if obtained before then, the 2013 limits will apply.

Although most FHA borrowers fall in the lower loan "conforming" loan limit of $417,000, as the California market rises, these cutoff points may create issues for certain borrowers. FHA loans in California, per the California Association of REALTORS® 2012 Annual Housing Market Survey, constituted about 24 percent of the total loans in the state, a significantly higher number than in 2007 when it was about 2% of the total.

Prospective borrowers contemplating entering the market should take steps to improve their credit scores, as some people may qualify for a conventional loan if they have higher scores.  Consult with a credit repair advisor before taking any drastic steps, such as cancelling a credit card, as that can lower your score.  Reducing debt may also help qualify for a conventional loan.  FHA, however, is always a good resource for many first time buyers, and may be the best option for many people, especially if a short sale was completed over 2 years ago. 

Please contact me for information about what is needed to obtain loan pre-approval, as it is far better to find a good referral rather than attempt a first mortgage purchase on the internet with someone whose area of expertise is unknown to you.

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