Friday, February 20, 2009

New FHA Loan Limits

Back during the wild and crazy lending days (less than two years ago) of no documentation of credit worthiness, no income verification and no down payment required, conventional loans ruled. Nobody got an FHA loan because sellers wouldn't accept the repair requirements that went with them, and borrowers who couldn't put 3% of the purchase price into the loan couldn't qualify for them.

Now a borrower needs a minimum of 10% down to get a conventional loan. Those who don't have that amount are left with FHA.

Last month, FHA loans were used on 28% of the sales in Tucson. VA loans were 8%, conventional loans were 35% and cash sales accounted for 27%. FHA is the loan of choice for many first time home buyers.

After being temporarily raised last year, on January 1, the limit on FHA loans dropped to $271,050. This made home financing unavailable to a significant part of the population.

The new stimulus package passed this week raised the FHA limit to $316,250. This is welcome news, especially for people who have houses priced above $271,050. Now they have a better chance of selling.

In January, a whopping 83% of the home sales in Tucson were under $300,000. The higher FHA loan limit should help move more properties.

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