Your Mortgage : FHA to Raise Ceiling on Loans to Home Buyers : Personal Finance: The increase in home loans is expected to remain in effect for at least one year and will help thousands of Californians quality for a mortgage.


The FHA loan limit is going to be raised in many parts of the country to $124,875, making it possible for 100,000 more Americans--including 20,000 additional Californians--to capitalize on the popular, low down payment loan program.

The increase was expected to take effect last week.

For years, the Federal Housing Administration has only been able to guarantee loans for a maximum of$101,250 for single-family homes in high-cost areas such as Southern California. In lower-cost areas, the limit has been $67,500.

Those limits have rendered the program virtually useless in many parts of California, where the median price of a single-family home is nearly $200,000.

While the revised ceiling isn't expected to spark a huge increase in FHA-financed deals, it's welcomed nonetheless by California's real estate experts.

"This certainly isn't going to solve our state's affordability problems, but it's a small step in the right direction," said Jim Antt Jr., a Bakersfield broker and president of the California Assn. of Realtors.

Antt said the higher loan limit will give an added boost to the already sizzling inland housing markets, such as Riverside and San Bernardino, where many single-family homes can still be purchased with a loan that is under the FHA maximum.

In Los Angeles and other highly urbanized areas, the higher ceiling will likely have its biggest impact on the less-expensive condominium and townhome market.

"There are a lot of condos and townhouses you can get with a $124,875 loan in L.A. or Orange County, but it's a lot harder to find a single-family house that can be purchased with that size loan," Antt said.

Based on its 1990 sales projections, CAR analysts estimate that 77,500 FHA sales could be made in the state this year with the higher loan ceiling. If the limit had stayed at $101,250, only 57,500 California homes could be purchased through the FHA program.

The higher ceiling will only be in effect until the end of this year unless it is extended or made permanent by Congress. Although real estate experts say it's likely that the ceiling will stay at the $124,875 mark or eventually move even higher, would-be home buyers should know that the ceiling may eventually be lowered to $101,250, said Bill Glavin, an FHA spokesman.

An estimated 17 million people have bought a home using the FHA loan program, which allows borrowers to make a down payment as small as 4% or 5%. The program requires a user fee equal to 3.8% of the loan amount, which most borrowers prefer to pay over 30 years instead of up-front.

Virtually all credit-worthy borrowers qualify for an FHA mortgage, as long as the property they're buying meets the program's basic requirements.

FHA limits are also being raised for multi-unit dwellings, Glavin said.

The new loan limit for duplexes is $140,600. It is $170,200 for three-unit buildings, and $197,950 for four-unit residential complexes.

More information about FHA loans can be obtained from mortgage and real estate brokers, lenders and regional offices of the U.S. Department of Housing and Urban Development.

Although the increase in the FHA loan limit is good news for borrowers, a bill that would raise the limit much higher--perhaps close to $200,000 for single-family homes in some high-priced markets--has apparently stalled in Congress.

The measure, part of a major housing bill introduced last year by Sens. Alan Cranston (D-Calif.) and Alfonse D'Amato (R-N.Y.), would allow the FHA to insure loans for an amount equal to 95% of an area's median-priced home.

For example, if the government decided that an area's median-priced home is $200,000, the FHA could insure a loan for as much as $190,000. The more liberal guidelines could literally allow millions more Americans to purchase a house with an FHA loan, according to housing analysts.

The bill has drawn fire from some legislators, who say the overall measure is too costly and that raising the FHA limit would primarily help well-heeled borrowers who can already qualify for a conventional loan.

Perhaps more important, Cranston and D'Amato have lost some political support both in Washington and with the public over the past few months.

Both lawmakers are being investigated by the Senate Ethics Committee--Cranston for his involvement in the Lincoln Savings & Loan controversy, D'Amato for alleged influence-peddling at the Department of Housing and Urban Department during the Reagan Administration.

"There's not a big crowd of congressmen rushing to support any bill that Cranston or D'Amato have authored right now," said one Washington insider.

A few other bills that would raise the FHA limit higher than the new $124,875 ceiling have also been introduced. But they, too, face an uncertain fate as an election-year Congress mulls a host of more pressing issues, including budget cuts and foreign affairs.

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