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FHA Loan Limits Open Doors/Users/adamp/Desktop/Stuff for FAR/Magazine Assets/JULY08/images/FHA

FHA loans are becoming more attractive. Here’s how to market to the people who can be helped with these new loan limits.

“This is great news for buyers,” says Cathy Alley, a sales associate at ERA American Realty in Niceville. She’s referring to the March announcement by the Department of Housing and Urban Development (HUD) that it increased the size of loans that the Federal Housing Administration (FHA) can insure for the remainder of 2008.

“I think the raising of FHA limits is going to help not only buyers in our area, but it will also generate activity across the nation,” says Alley. “When the market was hot, first-time buyers really couldn’t buy property because they were being outbid by investors. This will bring the average American back to the homebuying market.”

What the New Rules Mean

“FHA loans,” as they’re called, are issued by traditional lenders but insured by the FHA. Because they allow down payments of as little as 3 percent, they’ve been valuable in helping lower-income buyers enter the housing market. But as home prices rapidly increased, FHA loan limits remained stagnant. That left lower-income buyers with fewer homes they could purchase through the FHA program.

The new FHA rules are a result of the economic stimulus package Congress passed in February of this year. Through the package, Congress asked HUD to reconsider its median home prices in counties throughout the nation, which it uses to determine which loans it can insure. In most counties, including those in Florida, the FHA is permitted to insure only loans that don’t exceed 125 percent of the county’s median home price. In designated high-cost areas, the FHA can insure only loans that don’t exceed 175 percent of the median home price. By revising the median home prices upward, HUD is opening up the FHA program to more buyers.

For instance, in Miami-Dade County, the new median price is $339,000, which has raised the FHA loan limit from $362,790 to $423,750. In Lee County, the median price has been reset to $285,000, which has raised the FHA loan limit from $270,750 to $356,250. In Manatee County, the median price has been adjusted to $354,000, increasing the FHA loan limit from $336,100 to $442,500. Check the limit in your county by visiting HUD’s Web site: https://entp.hud.gov/idapp/html/hicostlook.cfm.
On the same day HUD increased FHA loan limits, the Office of Federal Housing Enterprise Oversight increased limits for loans guaranteed by Freddie Mac and Fannie Mae from $417,000 to $729,750. That means that buyers who needed financing greater than $417,000 in the past—and were required to pay higher interest rates for those jumbo loans—can now get loans up to $729,750 without paying the jumbo loan premium.

Spread the Word

As soon as the new FHA limits were announced, sales associates throughout Florida sprang into action. “I take any opportunity to reconnect with buyers,” says Toni Campbell, a sales associate at Keller Williams Advantage II Realty in Orlando. “Buyers need to hear something positive, so I started going through my contact list and letting them know that the FHA loan limits had been raised and that the change would help them get more of a home than they could afford before.”

Once Campbell gets buyers on the phone, her dialogue is simple. “I explain the difference with the new loan limit,” she says. “I say, ‘If you could normally afford a $350,000 home, this might allow you to get a home up to $375,000.’” Her pitch has worked. “I had two people who were looking at renting, and once I explained the FHA program, it piqued their interest in buying today rather than waiting two years.”

Alley has sent a postcard to buyers in her market explaining the new limits. On the front, she asks, “Could a FHA home loan be right for you?” On the back, Alley explains the benefits of the FHA program, including the low down payment requirement, the provision that allows sellers to contribute to buyers’ closing costs and the provision that allows gift funds to be used.

“I’m hopeful this will open doors to buyers who haven’t been able to buy,” says Alley. “And maybe the people I sent it to aren’t in the market themselves, but they may have a son or daughter who can afford to buy but who doesn’t have the cash for the down payment, and the parents can help out.”

The worst-case scenario for Alley is that even if the postcard doesn’t bring buyers in the door to take advantage of FHA financing, she’s still showing consumers that she’s smart and diligent. “Anything going out to my database that helps people understand that I’m still in the marketplace and shows I’m working hard for them—that helps.”

Glenn Stein, broker/owner of Realty Executives Ocala in Ocala, turned to the Internet to get the new FHA information out to his target audience. He posted news of the FHA changes on his Web site. Though he hasn’t had much response to his Web post, he’s also discussed the new FHA rules with buyers when he thinks the program might fit their needs. “Sometimes we can overcomplicate the jargon. Buyers are simply interested in, ‘Can I buy this house?’” he says. “So it’s a simple conversation with the sales associate and buyers in the car between showings. Most people think the FHA program is only for $100,000 houses, and when we’re showing houses right at the top of the FHA limits, we say, ‘Do you realize you have the option of 3 percent—not 5 or 10 percent—down on this house?’”

John C. Davison, broker/owner of The Davison Real Estate Group in Longwood, recommends that you also broaden the discussion to include other housing assistance programs. “I’ve begun to target first-time buyers more frequently to take advantage of the possibility of putting clients into a house with very little money down,” he says. “I even take it a step further and tell them about no-money-down options through government down payment assistance programs. With some programs, like [the Nehemiah Program], the Dream Homeownership Program and Family Home Providers, sellers can contribute up to 3 percent of the purchase price.”

Will the New Limits Work?

Sales associates are cautiously optimistic that the new FHA loan limits will bring buyers back onto the homebuying playing field. Davison believes they’re an asset, but not for all buyers. “There are definitely people in our area that the new FHA limits will help,” he says. “But lenders still have standards that need to be met, and we all know how tight those standards have become. Also, the increased loan limits do nothing for people who are saddled with selling a house to be able to move into another house. It’s like the corner candy store in a small town. It may double its size, but how much candy can people in that area buy?”

For Terry Dona, the new limits are already helping buyers beat tough down payment requirements. The sales manager at Metro Mortgage and Gulf Coast Associates in Bonita Springs, who’s also a mortgage underwriter and HUD lender, says that since the new FHA limits were introduced, she’s seen double the number of buyers using FHA loans to purchase homes. “Probably the biggest issue, especially for younger buyers, is the ability to get a down payment together,” she says. “With not-for-profit down payment assistance programs, buyers with a decent job and good credit can get into a house for as little as $500. That makes a huge difference, and it makes it possible for quite a few people to buy.”

G.M. Filisko is a Chicago-based freelance writer.