New FHA loan limits official

The new year brought good news for low-income and first-time home buyers with this month's announcement from Housing and Urban Development Secretary Mel Martinez that the Federal Housing Administration is increasing its single-family home mortgage limit by 9 percent.

Effective Jan. 1, 2002, FHA is insuring single-family home mortgages of as much as $144,336 in low-cost areas and loans of as much as $261,609 in high-cost areas. In Clark County, the loan limit is $146,300. The loan limits for two-, three- and four-unit dwellings also increased. The FHA is sending letters to thousands of mortgage lenders and brokers to make them aware of the higher limits.

"For the last year, housing has remained one of the stalwarts of our economy," Martinez said. "These new loan limits will further contribute to an even stronger housing market in 2002, and expand homeownership opportunities for many more families."

He said the increase in loan limits will enable more working families to become homeowners and will help the FHA mortgage insurance program to keep pace with the robust housing market.

Low-income and first-time home buyers are attracted to FHA-insured loans because the agency requires only a 3 percent down payment and permits family and friends to contribute to the initial home-buying expenses. In addition, FHA has more relaxed credit standards and permits borrowers to carry more debt than private mortgage insurers typically allow.

The increase in mortgage limits, combined with benefits such as the reduction in FHA mortgage premiums announced last year, makes FHA an even more attractive home mortgage product.

The new loan limits are part of an annual adjustment HUD makes to account for rising home prices. Under federal law, loan limits are tied to the conforming loan limits of Freddie Mac and Fannie Mae, federally chartered corporations that buy and package mortgages.

Three years ago the loan limits ranged from $115,200 to $208,800, levels below the cost of many homes in many communities. As a result, families who needed FHA mortgage insurance to qualify for buying a home were effectively locked out of the process.

The higher FHA loan limits will not cost the government any money, because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA insurance.

The increases will also benefit senior citizens who qualify for FHA-insured reverse mortgages. Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling them. Homeowners can select a lump-sum payment, monthly payments or tap into a line of credit. No repayment is required as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when the homeowner sells the home or dies.

With the new limits, HUD anticipates it will endorse $120 billion in single-family mortgages for 1.2 million homes in 2002, an increase of $14 billion and 200,000 homes over 2001 levels.

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