A homebuyer who’s getting a loan can now buy more house than earlier this year. That’s because lawmakers just approved increasing the maximum size of loans that can be guaranteed by the Federal Housing Administration.
The spending bill increases the maximum size of the mortgage that can be backed by the FHA to $729,750. That guarantees loans to buyers with down payments as low as 3.5%. In Nevada, the loan limit has been $287,500. It has now been increased to $400,000.
There are mixed feelings about the change by members of Congress. Some like Sen. Bob Corker (R., Tenn.) feel it does nothing to reduce the U.S. government’s role in propping up the housing market. Others such as Sen. Robert Menendez (D., N.J.) say restoring the loan limits will benefit the housing market at a time when it is weak. Doing so, he said, “won’t cost taxpayers a dime.”
The new legislation came after a disturbing independent audit of the FHA, which insures lenders against defaults, discovered the FHA’s cash reserves are so depleted that it’s 50% likely to run out of money in the coming year and require a taxpayer bailout. A huge attributing factor is private lenders pulling back from the mortgage market. As a result, the FHA’s market share skyrocketed. The FHA backed one third of mortgages used to finance home purchases last year. That’s up from just 5% five years ago.
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