FHA Home Loan Limits May Help Those at Risk for Foreclosure
Mortgage Credit Problems Columnist
In a move that may prevent countless home mortgage foreclosures, the FHA has raised its home loan limits to 125% of a county or regions median home price. For many homeowners in high priced areas such as
How Can a Rise in Mortgage Loan Limits Protect Against a Home Foreclosure?
Lending guidelines are less tolerant of less-than-perfect credit. Home values are dropping, leaving less equity to make lenders happy. Many of those who need to refinance have been forced to walk away from their home loans instead. But FHA lenders have more leeway for underwriting where there are credit issues, and they allow higher loan-to-values as well -- a bon to those with little equity thanks to the housing downturn. Now, with higher loan limits and the ability to take advantage of FHA guidelines, homeowners who might have gone through foreclosure can save their homes.
What Are Some of the FHA Advantages That May Prevent a Foreclosure?
FHA guidelines are more consumer friendly than those of most lenders. Borrowers looking for an FHA loan will find that:
- They will not need a minimum credit score to qualify for a home loan.
- They do not need to show reserves. Currently, many lenders want borrowers to have 3-6 months of PITI (principle, interest, tax, and insurance) in the bank. This makes the mortgage less risky in the event of a financial setback. FHA doesn't require this (although it's still a good idea to save it up when you can).
- 95% cash out refinances are available allowing borrowers with little equity to refinance out of their adjustable rate mortgages. Borrowers must have owned their homes for at least 12 months and have made the most recent 12 months' of mortgage payments as agreed.
- Maximum financing is still allowed in declining market areas -- unlike with conventional mortgage financing.
- Non-occupying co-borrowers acceptable. This means someone who doesn't live with you can still be on the loan if you need to show extra income to qualify.
These new loan limits should allow the FHA to lend in higher-priced areas than they could previously. Freddie Mac and Fannie Mae are adopting higher loan limits as well, allowing more borrowers the opportunity to prevent a home foreclosure and maintain their homes. If you have been worried about your home loan and are concerned about a possible bank foreclosure, check online or speak to a lender and find out how these new laws may help you avoid foreclosure and protect the security in your home.
Source: FHA Raises Housing Loan Limits in County, by Emmet Pierce, The San Diego Union Tribune, Thursday, March 6, 2008
About the Author
Sheryl Landrum is a Loan Officer at General Mortgage Corporation in San Diego, California and a freelance writer specializing in mortgage issues.
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