Effective March 6th,2008, FHA began offering temporary higher loan limits. As part of the Economic Stimulus Act of 2008, FHA is permitted to insure loans up to 125% of area median house prices. The increased mortgage cap for FHA loans is expected to shore up housing markets across the country. Conventional sources of funding have been drying up, and FHA financing is replacing them. Also, FHA’s financing program has helped homeowners escape dubious loan products created by subprime lenders, and is expected to stem the tide of rising foreclosure rates. FHA has lost market share in the past to alternate subprime mortgages. With the subprime lending institutions imploding, FHA is stepping in with a safer, more stable product, and is focusing on fixed 30 year mortgages.
How will this affect the Minneapolis real estate market? FHA mortgage limits for the Twin Cities area has been increased from $271,050 to $365,000. This means that an additional 25% of the homes currently for sale will qualify for FHA financing. More than 77% of them can now be sold with an FHA mortgage.
The change in loan limits is effective through December 31st, 2008.