I recently attended an FHA training by Terri Buckman of Franklin American Mortgage. Below is the press release from the government on new FHA loan limits which will make applying for an FHA loan an attractive alternative for homebuyers looking for low downpayment loans, even in high priced California!
Terri referred to the old days (circa 1990) where people who did not qualify under the stringent guidelines of lenders simply took steps to partner with non-occupant co-buyers. What a concept! Bring in a partner who will on paper help you be responsible for the payments in the eyes of the lender and the law, even if you were sure that you’d be able to handle the whole payment yourself.
In the late 1990’s with the advent of the low starter rates and low starter payment option ARM loans more people qualified at least during the starter periods of 1,3,5,7 years– at the risk of incurring negative amortization. And 1,3,5 years later, just like the policeman in the movie, Casablanca, they were shocked, shocked to discover their dilemma.
With the advent of stated loans instead of full documentation loans, borrowers were able to pay a bit more in rate and fees in order to have the lender accept their word for the sources of income used to make payments. They did not have to document their income, it was “stated”. Stated loans were designed to help non-employee independent contractors who have significant writeoffs due to running their own businesses, but who have good cash flow and are able to make payments on loans that traditional debt to income ratios would not have allowed. Naturally lenders chose to apply stated loans to anyone who would pay the premium and did not all require that employees with documentable income use full documentation loans. This, of course, appealed to everybody, but it opened the floodgates to all and helped buyers buy bigger houses than they could afford and helped investors really stretch into investment properties that they could not afford to carry if any little thing were to go wrong– like declining prices making refinancing impossible when flexible rate loans would reset to market rates as the starter/teaser rates expired.
With today’s return to higher lending standards and reduced risk for the bank, stated loans are going away. And partnering with co-borrowers is coming back into fashion, even for those with strong incomes, but little downpayment. In a FHA loan, gifts from family are allowed for downpayment.
See this excerpt from the FHA website (http://portal.hud.gov/portal/page?_pageid=33,717077&_dad=portal&_schema=PORTAL )
Why choose an FHA loan?
There are lots of good reasons to choose an FHA loan, especially if one or more of the following apply to you:
- You’re a first-time homebuyer
- You don’t have a lot of money to put down on a house
- You want to keep your monthly payments as low as possible
- You’re worried about your monthly payments going up
- You’re worried about qualifying for a loan
- You don’t have perfect credit
You’re worried about what will happen if you fall behind on your payments
If any of these things describe you, then an FHA loan may be right for you. Why? FHA-insured loans offer many benefits and protections that you won’t find in other loans including:
Lower cost: FHA loans have competitive interest rates because the Federal government insures the loans for lenders. Always compare an FHA loan with other loan types.
Smaller down payment: FHA loans have a low 3% down payment and the money can come from a family member, employer or charitable organization as a gift. Other loan programs don’t allow this.
Easier qualification: Because FHA insures your mortgage, lenders may be more willing to give you loan terms that make it easier for you to qualify.
Less than perfect credit: You don’t have to have perfect credit to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.
More protection to keep your home: The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, the FHA has many options to help you keep you in your home and avoid foreclosure.
The FHA does not give money to people for a home and it does not set the interest rates on mortgages it insures. FHA insures loans for lenders against defaults. For the best interest rate and terms on a mortgage, you should compare mortgages from several different lenders. An FHA-approved lender can help you start the loan application process.
Here is the press release from the FHA on the new loan limits.
FHA Max Limits Include 14 CA Counties
* FHA Press Release *
WASHINGTON – Tens of thousands of California families could be eligible this year to purchase or refinance their homes using affordable, government-backed mortgages, thanks to the economic growth package signed into law by President Bush. The Economic Stimulus Act of 2008 will allow HUD’s Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country.
“The Bush Administration is expanding the pool of eligible borrowers, enabling more American families to qualify for safe, affordable FHA-insured mortgage loans. These temporarily higher loan limits are a shot in the arm for communities trying to sustain property values, bringing much-needed liquidity to the mortgage market, while helping many current homeowners who desperately need to refinance,” said HUD Secretary Alphonso Jackson at a forum on how to prevent foreclosure at the Operation Hope Center in Los Angeles and a Hope Now Alliance event in Anaheim.
Beginning tomorrow, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750. Overall, the change in loan limits will help provide economic stability to America ’s communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative. The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as: Los Angeles County , San Francisco County , Orange County , and Santa Barbara County . Previously, FHA’s loan limits in these very high-cost areas were capped at $362,790.
The Economic Stimulus Act of 2008 permits FHA to insure loans on amounts up to 125 percent of the area median house price, when that amount is between the national minimum ($271,050) and maximum ($729,750). The new minimum and maximum loan limits are based on 65 percent and 175 percent of the conforming loan limits for Government-Sponsored Enterprises in 2008, which is $417,000. The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area. The change in loan limits are applicable to all FHA-insured mortgage loans endorsed after HUD publishes the increased loan limits tomorrow, and it lasts until December 31, 2008 .
By increasing loan limits nationwide, FHA will provide much needed liquidity and stability to housing markets across the country. Already, as conventional sources of mortgage credit have been contracting, FHA has been filling the void. From September to December 2007, FHA facilitated more than $38 billion of much-needed mortgage activity in the housing market, more than $15 billion of which was through FHASecure, FHA’s refinancing product. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.
“This is not an easy crisis to address, and there is no silver-bullet, but I know that we can help hundreds of thousands of people keep their homes, and we can calm the waters,” said Jackson .
In January 2009, FHA’s maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill.
“In January 2009 the loan limits will return to their previous setting,” Jackson said. “That is why we need to permanently raise the loan limits to an acceptable level that more accurately reflect housing prices nationwide. We also need to make the minimum down payment more flexible and create a fairer insurance premium structure. This will allow more families to use FHA.”
FHA loan limits are based on the county in which the property is located. However, for properties located in metropolitan or micropolitan statistical areas, the limit is set at that of the county with the highest limit within the metropolitan or micropolitan area.
The new temporary FHA loan limits for California are attached below. The full text of the Secretary’s remarks can be found on the HUD website.
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HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet at <http://listener.bliemail.com/forwarder.aspx?ID=a7ce4bbc-f4e6-439c-b9c3-12c87f0c7c0b|http%3a%2f%2frs6.net%2ftn.jsp%3fe%3d001GPnSaxHALMI9V0m-SS_aDrDc9GjPPLxF764nDn3D98O3HU8HasMH4X4vcljEJJroGI2weVOCxAFTcXuMM7YBwg%3d%3d> www.hud.gov and <http://listener.bliemail.com/forwarder.aspx?ID=a7ce4bbc-f4e6-439c-b9c3-12c87f0c7c0b|http%3a%2f%2frs6.net%2ftn.jsp%3fe%3d001GPnSaxHALMLfalvNA5G0OJQdZAhCv-yTc2_iTBJOIL8MsnNYM0rnG9zRKsZKhdvV6JXfosypIhVdeASJRLMIaZLaujeErR2a> espanol.hud.gov. For more information about FHA products, please visit <http://listener.bliemail.com/forwarder.aspx?ID=a7ce4bbc-f4e6-439c-b9c3-12c87f0c7c0b|http%3a%2f%2frs6.net%2ftn.jsp%3fe%3d001GPnSaxHALMLY6P5Am8cR-6cv87njBipB2zQ3VIQJyrQo7OTydYfIj5xjYdLT_9otCmzUR6qNTQ3NBvoPHuTrAg%3d%3d> www.fha.gov.
California County Limits
Obs prop_addr_st county_nm med_price FHA_1unit
185 CA Alameda County 995000 729750 – MAX
186 CA Alpine County 438000 547500
187 CA Amador County 355000 443750
188 CA Butte County 320000 400000
189 CA Calaveras County 370000 462500
190 CA Colusa County 318000 397500
191 CA Contra Costa County 995000 729750 – MAX
192 CA Del Norte County 249000 311250
193 CA El Dorado County 464000 580000
194 CA Fresno County 305000 381250
195 CA Glenn County 230000 287500
196 CA Humboldt County 315000 393750
197 CA Imperial County 260000 325000
198 CA Inyo County 350000 437500
199 CA Kern County 295000 368750
200 CA Kings County 260000 325000
201 CA Lake County 321000 401250
202 CA Lassen County 200000 271050
203 CA Los Angeles County 710000 729750 – MAX
204 CA Madera County 340000 425000
205 CA Marin County 995000 729750 – MAX
206 CA Mariposa County 330000 412500
207 CA Mendocino County 410000 512500
208 CA Merced County 378000 472500
209 CA Modoc County 125000 271050
210 CA Mono County 370000 462500
211 CA Monterey County 599000 729750 – MAX
212 CA Napa County 615000 729750 – MAX
213 CA Nevada County 450000 562500
214 CA Orange County 710000 729750 – MAX
215 CA Placer County 464000 580000
216 CA Plumas County 328000 410000
217 CA Riverside County 400000 500000
218 CA Sacramento County 464000 580000
219 CA San Benito County 790000 729750 – MAX 220 CA San Bernardino County 400000 500000
221 CA San Diego County 558000 697500
222 CA San Francisco County 995000 729750 – MAX
223 CA San Joaquin County 391000 488750
224 CA San Luis Obispo County 550000 687500
225 CA San Mateo County 995000 729750 – MAX
226 CA Santa Barbara County 615000 729750 – MAX
227 CA Santa Clara County 790000 729750 – MAX
228 CA Santa Cruz County 719000 729750 – MAX
229 CA Shasta County 339000 423750
230 CA Sierra County 228000 285000
231 CA Siskiyou County 235000 293750
232 CA Solano County 446000 557500
233 CA Sonoma County 530000 662500
234 CA Stanislaus County 339000 423750
235 CA Sutter County 340000 425000
236 CA Tehama County 250000 312500
237 CA Trinity County 200000 271050
238 CA Tulare County 260000 325000
239 CA Tuolumne County 350000 437500
240 CA Ventura County 599000 729750 – MAX
241 CA Yolo County 464000 580000
242 CA Yuba County 340000 425000
