The Federal Housing Administration is setting new limits for single-family home loans, reducing the maximum size of the mortgages it will guarantee beginning Jan. 1, U.S. housing officials said Friday.
The same limits have already been implemented by mortgage finance entities Fannie Mae and Freddie Mac.
On Jan. 1, the limits for FHA-insured loans in the nation’s most expensive areas will be $625,500 for a single-unit home, down from $729,500 — except for certain parts of Hawaii, where the limits will be $657,800 to $721,050.
The current standard loan limit for areas where housing costs are relatively low will remain unchanged at $271,050.
The FHA historically provides insurance on smaller loans to allow first-time borrowers and people with modest incomes to own their homes.
However, the FHA’s role evolved as Congress increased the limits in 2008 during the height of financial crisis.
More recently, banks are looking to underwrite more jumbo mortgages for borrowers with deeper pockets — without government support.
“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”
Areas are eligible for FHA loan limits based on median area home prices.
Additional information and loan limit adjustments for two-, three-, and four-unit properties, and in “Special Exception Areas”, are noted in FHA’s mortgagee letter.
An attachment to the Mortgagee Letter provides information on which counties are eligible for loan limits above the national standard.
Borrowers with existing FHA insured mortgages may continue to utilize FHA’s Streamline refinance program regardless of their loan balance.
The changes announced today are effective for case number assignments between January 1, 2014, and December 31, 2014.