Borrowers flock to FHA loans

FHA loans, which are backed by the Federal Housing Administration (FHA), are enjoying a resurgence in today’s tighter lending climate.

FHA loans, which have been out of favor in recent years, are especially popular today because they typically have easier qualification requirements than non-governmental loans and require only a small down payment or very little equity. An FHA loan also may have a lower interest rate than would be offered on a comparable loan that wasn’t backed by the U.S. government.

What is the FHA?

The FHA doesn’t actually make loans. Instead, this agency offers a guarantee that reimburses your lender if you don’t pay back your loan. You’ll have to pay small upfront and monthly fees for that protection, but a lower interest rate might offset the extra expense.

An FHA loan can be used to buy a home or refinance an existing mortgage. Traditionally, the agency has been seen as an alternative for lower-income borrowers or borrowers with shaky credit histories. But now even well-to-do borrowers in affluent housing markets are opting for FHA loans.

In fact, the maximum loan amounts, called "limits," that applied to FHA loans used to be relatively low compared with home prices, but recently were raised to significantly higher levels. The new limits range from $271,050 in inexpensive housing markets to $729,750 in high-cost markets. The uppermost limit used to be just $362,790 even in the nation’s most costly cities.

You can find out the new limit for your county on the FHA’s web site, The web site has two search functions: One uses an interactive map, and the other is a form with pull-down menus. If you’re planning to relocate, you can download a county-by-county chart of all the FHA loan limits across the country.

You can also see if you may be eligible for an FHA loan at LendingTree. The FHA loan eligibility tool will give you an idea if you could qualify for an FHA loan and can help you get matched with lenders.

The new FHA loan limits will expire at the end of this year, unless Congress extends them. That means you’ll need to act soon if you want to lock in the benefits of a bigger-than-usual FHA mortgage.

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