HUD has announced the newly increased FHA loan limits.

These loan limits are part of the economic stimulus package signed by President Bush recently. While only temporary, they will be invaluable in helping homeowners recover from exotic interest only or negative amortization loans that they may have taken prior to the recent collapse of the subprime mortgage market. Since that collapse, it has been extremely difficult to refinance these jumbo loans.

The Act provides that the mortgage limit for any given area shall be set at 125% of the median house price in that area, as determined by the Department of Housing and Urban Development, except that the FHA mortgage limit in any given area cannot exceed 175% of the 2008 Freddie Mac conforming loan limit of $417,000, nor be lower than 65% of the same 2008 Freddie Mac conforming loan limit for a residence of applicable size.

Thus, in areas where 125% of the median house price is less than 65% of the Freddie Mac limit, the FHA limits are set at the 65% limit, i.e. the "floor", as follows:

• One-Unit          $271,050
• Two-Unit          $347,000
• Three-Unit       $419,400
• Four-Unit         $521,250

 "High-Cost" Loan LImits

Any area where the limits exceed the floor is known as a "high cost" area. In areas where 125% of the median house price exceeds the 175% limit of $729,750 for a 1-unit property, the mortgage limits are set at the 175% amount, i.e. the "ceiling", as follows:

• One-Unit         $729,750
• Two-Unit         $934,200
• Three-Unit      $1,129,250
• Four-Unit        $1,403,400

For all other areas, i.e those where 125% of the median home price for the area is in between the floor and the ceiling, the limit shall be at 125% of the median home price.

So what does all of this mean? This means that the FHA loan limit for every area of the country has increased. How much it has increased depends on the area of the country. However, this has certainly opened the dorrs to FHA financing to millions of peoiple that previously were unable to obtain it. You must remember, however, that these changes are temporary, so if you feel that these changes may help you, you should not wait to take advantage.

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