Unless Congress extends the expiration deadline, Federal Housing Administration (FHA) loan limits set in 2008 will drop significantly beginning October 1. Congress raised the loan limit amount in response to the housing crisis to help spur the homebuying market. FHA loans offer borrowers very competitive rates and terms, and they only require a 3.5% down payment. Allowable debt ratios are higher than the typical debt-ratio limits imposed for conventional loans, and there are no income limit qualifications, so more people can qualify for them.
If the loan limit drops on October 1, many Minnesota first time home buyers will face higher down payments, higher mortgage rates and stricter loan qualification requirements. Borrowers seeking larger mortgages will have to apply for conventional loans or jumbo loans, which may be subject to higher interest rates and down payments.
LOWER LOAN LIMITS. The conforming loan limit determines the maximum mortgage amount that FHA, Fannie Mae and Freddie Mac can buy or guarantee. If you want to stay under the current loan limits, purchase now and close by September 30th.
MORE STRINGENT REQUIREMENTS. FHA loan requirements may allow for lower credit scores. So an applicant with a lower FICO score can still qualify for an FHA loan, even if they can’t for a conventional loan. Your clients may be able to obtain an FHA loan three years after defaulting or having a loan foreclosed.