FHFA Announces Increase in Maximum Loan Amounts for Conforming “FHA” Mortgages
There is some good news for those people looking to buy a home in 2017. The Federal Housing Finance Agency, or FHFA, has announced that for the first time since 2006, they will be raising the maximum conforming loan limits for FHA mortgages.
FHA mortgages, for those that may not be aware, are those that are insured by the Federal government. FHA mortgage loans are popular because they allow prospective home buyers to put as little as 3.5% down to buy.
How is the FHA Maximum Mortgage Loan Limit Calculated?
The baseline loan limit for FHA mortgages was set back in 2008 through the Housing and Economic Recovery Act (HERA). HERA sets the baseline FHA mortgage loan limit at $417,000 with a yearly review and adjustment based on the average home price nationally. However, we all know that home prices vary greatly across the country. Therefore, the FHA raises mortgage loan limits in high-cost areas; where the median (or mid point) of home values is greater than 115% of the baseline loan amount. The maximum increase in high-cost areas is to 150% of the baseline.
What are the 2017 FHA Mortgage Loan Limits?
The FHFA Housing Price Index for the third quarter of 2016 increased for the first time since the third quarter of 2007, on which the HERA baseline was calculated. The increase in the Housing Price Index between the two periods was about 1.7%. Therefore, the baseline FHA loan amount for conforming mortgages is being increased from $417,000 to $424,100. The maximum FHA mortgage loan amount is further increased to up to $636,150 for high-cost areas.
Fairfield County, Connecticut is considered to be a high-cost area under the FHA guidelines. The Maximum FHA mortgage loan amount for Fairfield County is $601,450. This is just $34,700 less than the FHA absolutely maximum allowable mortgage loan amount for the highest cost areas in the country.
Why Buy With An FHA Loan?
A stated above, FHA mortgage loans are popular because they allow the Buyer to put less than 20% down, often as low as 3.5%. Additional benefits are refinancing without appraisals and FHA mortgages being assumable by future Buyers.
However, FHA loans require mortgage insurance premiums (MIP) for any loans with less than 20% down. There is both an “up front” fee that is paid at closing as well as monthly payments. MIP is an additional expense that home buyers should consider when deciding between FHA and other loan types.