Just in time for the holidays, the FHA (Federal Housing Administration) loan limit increase back to $729,750 from the $625,500 limit that existed prior to the mortgage crisis and for about half of 2011.
The limit means a lot in our area, where the median housing price is near the top in the nation. Since a greater percentage of our homes are sold in the $500,000-700,000 price range than in most of the rest of the country, the limits will be of particular benefit to our region. Sellers will have a greater support to maintain their home’s value since more buyers will be qualified to buy their home and therefore demand will be greater. And buyers will be able to qualify for more properties since the limit will increase.
Since FHA only requires a down payment of 3.5 percent and has rates that are often better than those of conventional loans, it has become an increasingly important part of the home buying and selling process. While there is a 1 percent funding fee and mandatory PMI requirements for five years for buyers who take advantage of the program, it has become a way for homebuyers to enter the market with less capital than is required by conventional programs.
Purchasing a home with less personal investment was a key factor in the mortgage and housing crisis that FHA loans are meant to help combat, but lending requirements and oversight have increased dramatically since the days preceding the 2008 meltdown. Gone are the so-called “no-doc”or “stated income” loan programs that simply relied on a credit score (and often a poor one) and while the minimal down payment requirements of FHA loans do not ensure buyers have much of their own skin in the game, buyers may only hold one FHA loan at a time, which helps prevent the extreme overleveraging of amateur investors that contributed to the nation’s foreclosure rolls.
The practical impact of an FHA loan limit increase is easily felt by today’s buyers and sellers. A listing of our own at $799,900 got limited interest while the loan program was reset to its pre-2009 levels, since it effectively ruled out FHA as an option (a buyer would need, $174,400 or 21.8 percent on top of the $625,500 loan to purchase the home at full price; this would make a conventional loan more attractive since it would not come with the 1 percent funding fee nor the more restrictive PMI — private mortgage insurance — requirement). When the limit was increased again, we instantly got two offers; one due specifically to that increase because the purchase could be made with $70,150, or 8.8 percent down at full price. Simple supply and demand dictates that with more buyers (who are not just willing, but also able), prices will stay steady or increase.
Our market continues to be strong and reliable, and investing in real estate in our area has become a favored way to build long-term financial security. The reversion to our recently high limits will only continue to benefit our local economy — specifically home buyers and sellers — as long as it is in place.
David Bediz is a Realtor at Coldwell Banker Residential Brokerage and part of the Dwight and David Real Estate Group. He can be reached at 202-352-8456 or through DwightandDavid.com.