All the numbers
And the single family loan limit is not the only one going up. The limits for duplexes, triplexes and four-plexes are going up as well:
FHA loans require 3.5% down, so the corresponding maximum prices (assuming minimum down payments) are: $423,100 for a single family house, $541,600 for a duplex, $654,700 for a triplex and $813,600 for a four-plex.
How does that compare to Fannie?
In case you missed the news, Fannie Mae and Freddie Mac also announced higher loan limits for 2017. The limits for Portland are increasing from $417,000 to $424,100. Hey, I’ll take what I can get, but that that’s just a 1.7% increase, compared to the (nearly) 11% FHA increase.
The mechanics and some history
FHA loan limits are established annually, subject to a ceiling and a floor. In the Portland Metropolitan Statistical Area (MSA), the maximum loan amount for a single family home is 115% of the highest median sales price for any year, 2008 to the year prior to the year being set. The limits for plexes are set using multiples of the single family amount.
During the throes of the mortgage crisis and resulting recession, Congress, through the Economic Stimulus Act of 2008, gave special authority to FHA to lend at higher-than-normal loan limits. The Act pinned FHA loan limits to the Fannie Mae limit of $417,000 for a single family home. Technically speaking, Fannie Mae loan limits should have dropped as housing prices dropped, but in an effort to not kick a housing market that was already down, regulators decided to hold loan limits steady. That meant FHA loan limits held steady, as well.
And it was a good darned thing. For a few years there, while banks were over in a corner licking their wounds and dealing with short sales and foreclosures, no else was lending money all that enthusiastically, never mind lending money to borrowers with little money down and/or less than perfect credit. FHA effectively and efficiently stepped in to fill the void, going from a mere 4.5% of purchase loans closed in 2005 and 2006 to whopping 24% to 33% during the Great Recession.
This was anything but an accident. One might even say it was by design. FHA was, after all, formed in 1934, during the Great Depression to lend money to homebuyers during a time of banking crisis and great economic turmoil. This now makes two times that FHA has saved our bacon (thanks, FHA!).
Flash forward to December 31, 2013. The Economic Stimulus Act expired, which meant FHA had to go back to their old calculation. On January 1, 2014, FHA loan limits for the Portland MSA dropped (a bunch), from $417,000 down to $362,250. The past few years, as median prices started to increase, our loan limit increased as well: from $362,250 to $368,000 January 1, 2016 and now to $408,250 in a couple of weeks.
So who cares?
I suspect there’s at least one or two of you reading this and thinking, FHA? Who cares about FHA loans… nobody does those anymore. Well, hang onto your hats. In my next (thrilling) post, I aim to debunk some myths about FHA loans and share some compelling reasons why FHA is still a relevant and important loan program. Become a fan of the Workshop Mortgage Team on Facebook you won’t miss a single (mesmerizing) word.
