If you have been on the fence about buying a home or refinancing the one you already own, the 2016 FHA loan limit increases may financially benefit you. Here’s how…
The Federal Housing Administration continues their mission in helping consumers realize the dream of homeownership. In today’s mortgage lending environment there’s three buckets of loan options available for borrowers including; Conventional, FHA or Jumbo loans. FHA mortgages are significantly more flexible especially in the following areas:
- higher debt ratio allowance
- 3.5% equity
- lower credit scores ok
- spotty credit histories ok
The fact the FHA raised its loan limits in 188 counties nationally speaks to a broader theme there is a reinvigorated demand for housing both in terms of home sales, and refinancing. For example in Sonoma County, California, the Federal Housing Finance Agency had a maximum Conforming Loan Limit for 2015 at $520,950 and that number has been set for $554,300 in Sonoma County for the year of 2016. The FHA has followed suit in raising their loan limit also previously set at $520,950 to match the $554,300 Conforming High Balance Loan Limit.
What this means whether in Sonoma County or elsewhere, is that you can buy a home with 3.5% down up to the maximum FHA Loan Limit. In Sonoma County that means you can buy a house with a loan size all the way to $554,300 with just 3.5% down. In other words for people, who have been on the fence about buying a home because they didn’t have the cash, or housing prices have risen so strongly that they didn’t have the means to have a competitive chance, now those people have opportunities to expand their home searches, or be in a position to refinance that they were not previously able to.
Using the Sonoma County $520,950 previous loan limit for example, now a borrower in 2016 has the ability to borrow up to 33,000 more or spend $33,000 more to buy a home under FHA’s more flexible underwriting criteria. Case in point, if you are looking for a home to purchase and your loan size that you were looking for was over $520,950 in 2015 that would’ve thrown you into the Jumbo Mortgage Loan category requiring significantly more cash out of your pocket. In 2016, you could buy that same house with only need 3.5% down all other things being equal, this is why the loan limit increases, for the right type of borrower can substantially benefit them because they would need less cash and have more leniency in loan-to-values needed for a higher priced home.
As a refresher FHA still has these flexible financial thresholds include the following:
- up to 85% cash out refinancing
- 3 years waiting time post foreclosure
- 3 years waiting time post short sale
- 3 years waiting time post deed in lieu
- 2 year waiting time from chapter 7 bankruptcy
- 1 year waiting time from chapter 13 bankruptcy
FHA Loans present a makes sense opportunity for people to get their foot in the door, but it does come with some higher costs consumers ought to consider. FHA loans contain a 1.75% upfront mortgage insurance premium typically, financed in the loan amount (can be paid for in cash too), as well as a monthly mortgage insurance premium based on .8% of the loan amount on a monthly basis.
The FHA Loan can help a borrower accomplish their financial goals while the same time bettering their equity position and their credit score to refinance into something lower on the more long term horizon. Like Conforming Conventional and Jumbo Loans, FHA loans still require full documentation including two years tax returns, W-2s, month’s pay stubs, and bank statements and are very flexible on reserves and gift monies to purchase or refinance a home.
Looking to buy a home or refinance the one you already own? Begin with a free rate and cost quote now.