The Department of Housing and Urban Development (HUD) announced in December that new Federal Housing Authority (FHA) single-family loan limits changed as of the first of 2014. This change came in response to the Housing and Economic Recovery Act (HERA) of 2008, which legislated new mortgage rules in an attempt to prevent another financial crisis in the housing sector of the economy. The new FHA rules changed the loan limits under HERA and were originally scheduled to take effect in 2009, but a slow housing market and tighter credit standards prompted a delay. The new limits are based geographically but not all loan limits change.
While the FHA doesn't directly issue loans, it guarantees the loans for first-time buyers who might not qualify for other bank loans. If applicants meet certain criteria to qualify for an FHA loan, they can be eligible for low downpayments and low interest rates. New home buyers can purchase their primary home with as little as 3.5 percent down.
The goal of the FHA loan program has been to keep the housing market active by putting people into homes. In addition to only requiring a small downpayment, buyers without a credit history can also qualify, which can help recent college graduates on the path to home ownership.
However, soaring numbers of loan defaults were a major component of the financial crisis in 2008, and HERA was thus enacted by Congress. The new FHA rules lowering the limits is seen as a way to prevent potential buyers from purchasing homes priced beyond their means.
The "standard" loan limits didn't change from 2013. The standard rate is related to median home prices across the U.S. Some cities which are assigned standard limits include St. Louis, Pittsburgh, Cleveland, Colorado Springs, Tampa, and Bakersfield, CA.Standard 2014 FHA Loan Limits
- 1-unit home: up to 271,050
- 2-unit home: up to 347,000
- 3-unit home: up to 419,425
- 4-unit home: up to 521,250
Areas which qualify for higher than the standard limits include Atlanta, Miami, Chicago, Denver, San Francisco, and New York City. These loans also have a floor--which is equal to the standard limit--and limits vary by county and are set at a fixed amount between the amounts detailed below.High-Cost 2014 FHA Loan Limits
- 1-unit home: between271,050 and625,500, down from729,750
- 2-unit home: between 347,000 and 800,775, down from 934,200
- 3-unit home: between 419,425 and 967,950, down from 1,129,250
- 4-unit home: between 521,250 and 1,202,925, down from 1,403,400
There are special exceptions for Alaska, Hawaii, Guam, and the Virgin Islands. In these areas, limits can be nearly $1 million, or over a staggering $1.8 million for a four-unit home.Special Exception 2014 FHA Loan Limits
- 1-unit home: up to 938,250
- 2-unit home: up to 1,201,150
- 3-unit home: up to 1,451,925
- 4-unit home: up to 1,804,375
According to the FHA, about 650 counties now have a lower limit. The entire list of 2014 loan limits by county is available here.
In December, FHA Commissioner Carol Galante said, "Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved."
In the press release, the FHA also said, "This will be the first full implementation of loan-limit calculations under HERA. The higher limits that have been in place for six years were established by the Economic Stimulus Act of 2008 as emergency measures to assure that mortgage credit was widely available during a time when private lending options were severely constrained."
Not all buyers will qualify for the maximum limits, however. The FHA raised its standards in 2010 in an additional effort to reduce mortgage defaults. The new rules included more stringent income verification and some additional checks. Appraisals were also deemed valid for only up to four months, to keep estimated values in line with current market prices in volatile housing markets.
Shirley Pulawski is a freelance journalist who frequently contributes to MyBankTracker.com.