New Law to Make FHA Loan Available to More Buyers

Another 26,000 would-be buyers in Southern California and other pricey housing markets across the state will be eligible for the FHA’s popular home-loan program over the next year, thanks to a law raising the limit on the size of the loans that the Federal Housing Administration is allowed to insure.

The bill, authored by Rep. Bob Traxler (D-Mich.) and signed into law by President Bush last week, raises the maximum FHA loan amount in high-cost areas of California and other parts of the country to $151,725 from the current $124,875.

FHA loans are popular with many buyers, especially those purchasing their first home, because they require relatively small down payments.

FHA mortgages are also easier for some cash-strapped buyers to obtain because they allow borrowers to have slightly higher debt levels than many non-FHA loans allow.

Areas that will be covered by the higher limits include most parts of Los Angeles, Orange, San Diego and Santa Clara counties, as well as the San Francisco Bay Area.

The FHA limit in Riverside and San Bernardino is expected to rise to about $128,500 from $124,875, according to analysts at the California Assn. of Realtors, because home prices in those two inland counties are lower than prices in coastal areas.

The higher limits cannot go into effect until the Department of Housing and Urban Development publishes regulations that reflect the new ceiling and how it is calculated, according to CAR.

The regulations are expected to be completed by mid-November, the realtors said, and the new limits in place by the start of next year.