The Federal Housing Administration (FHA) has been around since June 27, 1934. It was folded under the Department of Housing and Urban Development (HUD) umbrella in 1965. FHA mortgage loans began to lose steam in the late 1990s, when home values started increasing because home prices were exceeding the FHA loan limits. Sellers also didn’t like working with buyers using FHA home loans because of the FHA’s stringent appraisal guidelines. With the recent housing turmoil and home prices tumbling in excess of 30% in some areas, FHA has made a comeback. See more at FHA Home Loan Services website.
A housing stimulus was passed earlier this year that temporarily set the FHA and conforming Fannie Mae/Freddie Mac (FNMA/FHLMC) loan limits to the lesser of $729,750 or 125% of an area’s median home sales price. If 125% of an area’s median home sales price is below the current conforming loan limit of $417,000 the current limit still applies. The higher loan limits allow first time home buyers with limited down payment resources, and possibly not so perfect credit, get a FHA loan in higher-priced areas like California and Arizona. Remember, the credit requirements for FHA loans are not as stringent as those for conventional loans. These higher loan limits expire on December 31, 2008, so now is the time to take action. The loan limits lower to a maximum of $625,500 (115% of an area’s median home sales price) on January 1, 2009, when the new housing law loan limits take effect.
With the passage of the Housing and Economic Recovery Act of 2008 (the new housing law) on July 30, 2008, the first time homebuyer benefits even more through a tax credit worth as much a $7,500. The credit isn’t a grant, but rather an interest-free loan that must be paid back to the government over the course of 15 years. If the property is sold for more than the original purchase, and the tax credit hasn’t been fully repaid, the borrower must pay back the balance out of the proceeds of the sale. To get the tax credit, you must buy before July 1, 2009.
James Glassman, a senior economist at JPMorgan Chase, says the tax credit is unlikely to increase demand from first-time home buyers all by itself. But when coupled with other factors–such as falling home prices–”it’s just one more thing that helps,” Glassman says. Add the benefit of using low rate FHA home financing and it could get first time buyers who are sitting on the fence trying to decide if the time is right to purchase a home to take action and become a homeowner.
Are you a first-time homebuyer? We can help you take advantage of the provisions under the new housing law and newly modernized FHA with its higher loan limits. Just fill out the free loan quote form on the right side of this page, and a lender will get with you promptly.
