FHA Loan Limit Influences Foreclosed Houses for Sale

by on Foreclosure Crisis

The sales pace of foreclosed houses for sale and other residential properties is being influenced by the loan limits imposed by the U.S. Federal Housing Administration, based on a study of residential real estate sales nationwide.

Housing units, including foreclosed houses for sale, priced below $417,000 are selling much faster than homes priced above $417,000 – the price limit set by FHA for home loans that it buys in most areas across the U.S.

Because more than half of all home buyers who purchased pre-owned homes and foreclosed houses for sale in recent months were first-time home buyers, most of the properties bought were priced below $417,000 – the FHA loan limit.

Unlike during the housing boom in 2006 and 2007 when even first-time home buyers were buying higher-priced homes, first-time home buyers now are very conscious about their ability to sustain monthly payments.

Also, they are now considering and using FHA loans, unlike before when many prospective home buyers were ignoring FHA loans because of the loan limits.

Lawmakers increased FHA loan limits to address the needs of home buyers in high-cost areas, but still, many homebuyers in recent months preferred foreclosed houses for sale and other properties priced below the FHA loan limit of $417,000.

In 76 high-cost counties across the country, lawmakers allowed Fannie Mae and Freddie Mac to increase the loan limit of $417,000 to $729,750. But the higher loan limit is set to drop to $625,000 in January next year.

In 600 other areas of the country, lawmakers have increased the $417,000 loan limit to amounts ranging from $417,001 to the higher limit of $729,750.

However, despite the increase in FHA loan limits, mortgage lenders are still wary about providing jumbo loans because investors in mortgage-backed securities have not returned to the market.

Economist Lawrence Yun said the jumbo housing market is not moving because even people who have the needed income level to buy higher-priced homes have not been buying because of the higher mortgage rates for jumbo loans.

According to recent real estate sales data, home loans higher than $417,000 comprised only ten percent of the home mortgage market in eleven states and Washington, D.C. This figure shows that foreclosed houses for sale and other homes priced below $417,000 comprised the bigger portion of recent housing sales.