The Federal Housing Administration (FHA) has revised loan limits on single-family mortgages as part of the Housing and Economic Recovery Act of 2008. Although the revisions went into effect on January 1, 2014, the change has been long anticipated by economists and real estate professionals alike — especially in terms of forecasting and what this might mean for the housing market. Passed in 2008 and intended to be active at the start of 2009, Congress delayed it due to what they called, “continuing strains in credit markets” as reported by the HUD at that time. The changes amount to this: according to Mortgagee Letter 13-43, the FHA single family loan ceiling limits will come down by nearly $100,000 – capped at a $625,000 lending limit from the much higher $729,750.
Changes to Qualified Mortgage Rules
In an article on CNNMoney, titled, What the new mortgage rules mean for you, it reports that the bulk of the impact will be felt in Qualified Mortgage rules. Here the major changes:
- · Changes in debt-to-income ratio – it must be below 43%. Banks can still make loans to people with debt-to-income ratios if there is a high level of assets, justify the risk.
- · Qualified mortgages cannot include risky features, such as terms longer than 30 years, interest-only payments or minimum payments…
- · Upfront fees and charges cannot add up to more than 3% of the mortgage balance.
Los Angeles & Ventura County FHA Lending Limits
Most Southern California area realtors are bracing for impact as the FHA guidelines impact the market, although the larger picture still looks quite positive. For the coastal communities—where the homes tend to be $650,000+ and up—many wonder what this means long term? Home owners planning to sell—especially in this first quarter when buyers may be reticent due to changes—may feel a big impact.
In Los Angeles County the new FHA lending limit is $625,500 and in Ventura County, it’s now $598,000.00. These new FHA lending limits could force those in a higher priced market like Ventura County to lower the initial listing price. On the flip side, the changes could ward off those that were ready to buy from actually taking the plunge. Ultimately, whether this means sales will slow, or sellers will hold indefinitely, we’re currently in the speculative stages, but the conversation is none-the-less, important.
Austin Lampson of OnQFinancial, says the biggest impact will be on first time buyers and it may indeed slow the successful boom reported by many realtors last year in Southern California. Lampson says:
This [change] can greatly impact one’s buying power in high-cost areas of the Gold Coast, Santa Barbara and Ventura Counties. For example, right now the single family limit for an FHA-insured mortgage in Santa Barbara County is $729,750. If you are putting the minimum 3.5% down, that equates to a $756,217 sales price…at the updated loan amount of $625,500, $648,186.
Home Buyers/Sellers in Ventura County…
One inevitable truth: the housing market is as excitingly unpredictable as it is volatile as it is rewarding and that will is predictable. So as the FHA, in an effort to restore the economy and incentivize banks to lend to the under-served, imposes lending limits on the higher priced markets, we all brace for impact…and it’s only January! Happy house hunting!
If you have questions on any of the issues raised in this article or you would like to list a home or view listings in and around the Ventura County area, contact Lydia Gable today for a consultation.