The Department of Housing and Urban Development just announced the new FHA loan limits for 2016. 188 counties had an increase in loan limits – including King, Pierce, and Snohomish counties. Effective January 1, 2016, the FHA loan limit for these three counties will increase from $517,500 to $540,500 (a 23K increase) for single family residences.
An FHA loan is a home loan that is insured by the Federal Housing Administration. If a borrow on an FHA loan defaults on their mortgage, the government pays the lender for their losses. Because the loan is guaranteed by the government, banks are able to make riskier loans at lower interest rates. FHA loans are attractive to moderate income buyers who may not have a large down payment available. Borrowers are allowed to make a smaller down payment (as little as 3.5%) but will have to make mortgage insurance payments as part of their mortgage payment each month.
How is the FHA loan limit calculated and why the increase? The maximum lending amounts for this program is based on a percentage of conforming loan limits and are based on home prices in each county. Because of the significant increases in home prices in the greater Seattle area FHA loan limits have increased.
This is great news for home buyers with a limited down payment but with the income to accommodate a higher purchase price. As always, working with an experienced and knowledgeable mortgage broker is essential. An experienced lender will educate buyers on all loan products available and assist them in choosing the best loan for their situation.