The Department of Housing and Urban Development (HUD) announced late Friday that the maximum loan eligible for a Federal Housing Administration (FHA) guarantee will be reduced from 2013 levels in a number of areas of the country starting January 1. While the standard FHA loan limit for areas considered to have low housing costs will remain at the current $271,050 level, 650 of the areas deemed higher cost will have their maximum loan sizes reduced.

To find out if your county has been affected by this, please visit the official FHA lending limits site.

FHA loan limits are calculated according to a formula prescribed by the Housing and Economic Recovery Act (HERA) based on median home prices.  Most of the limits apply on a county by county basis.  The new maximum loan limit for high-cost areas will drop on January 1from $729,750 to $625,500.  Loan limits that fall between the standard limit and the high-cost limit will also be affected.

“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”

The Federal Housing Finance Agency announced on November 26 that limits for loans eligible for purchase or guarantee by Freddie Mac or Fannie Mae would remain at 2013 limits for 2014.  The standard limit is $417,000; limits in high cost areas range up to $625,000.

If you have any more questions about the change in FHA loan limits, feel free to contact your Mortgage Consultant today.