New FHA  Loan Guidelines to Slow Housing Recovery

New FHA Loan Guidelines to Slow Housing Recovery-Image by Gerard Stolk 64 via Flickr

Upcoming loan limit changes will have a severe negative impact on Massachusetts home prices, warn John McGeough and Anthony Lamacchia of McGeough Lamacchia Realty.

Unless Congress grants an extension, as of September 30th limits on loans backed by the Federal Housing Administration (FHA) and government-backed housing lenders Fannie Mae and Freddie Mac, will decrease.

Massachusetts Realtors John McGeough and Anthony Lamacchia, owners of McGeough Lamacchia Realty in Waltham, are concerned loan limit changes would affect counties in the U.S. where median home prices tend to be higher than the national average, meaning people living in Massachusetts will have to pay a higher rate purchasing a home or won’t be able to buy at all starting in October. McGeough and Lamacchia warn these limit changes will have a severe negative impact on home prices above these limits.

Back in 2008, in an effort to make up for the lack of bank lending, Congress temporarily increased loan limits. Raising these loan limits lead to lower interest rates, better refinancing opportunities, and allowed people living in high cost areas to avoid higher cost loans that led to the economic downturn. A recent National Association of Home Builders study found that if the limits are allowed to return to 2008 levels, millions of homes would have to be financed with mortgages requiring higher interest rates and down payments.

Upcoming loan changes will have a negative impact on the real estate market in Massachusetts because people buying homes will have to put down much larger down payments.
“For instance, look at homes in Worcester County, Massachusetts” says Anthony Lamacchia, “The current FHA loan limit is $385,000. Starting October 1st it will go down to $285,200: a $99,800 drop.”

FHA loans now allow first time buyers to buy homes with as little as 3.5% down. These loans are being used in over 70% of first time purchases nationwide. After the changes many homes will no longer be eligible for government-backed lower interest rates and low down payment loans. The amount of home buyers will decrease, which will increase the supply of homes for sale, resulting in an overall decrease in home prices.

Bipartisan legislation, The Homeownership Affordability Act of 2011, has been introduced in the House and Senate that would extend the current loan limits for two more years. But McGeough and Lamacchia don’t believe this will pass.

“The reason these limits will be allowed to decrease is because it mostly affects four states: Massachusetts, New Jersey, New York and California. Those are states with higher home prices and do not have enough members of Congress to vote for an extension,” says McGeough. In fact, states most affected by the loan limit changes represent a large percentage of the country’s homes and population.

McGeough and Lamacchia believe these loan changes will affect homeowners as well.
“With fewer buyers eligible for loans it will be harder to sell your home,” says McGeough. Keeping the current loan limits will allow homebuyers in higher-cost areas like Massachusetts to be eligible for affordable mortgage financing and allow them to purchase homes with lower down payments and more reasonable interest rates.

“The government is working hard to decrease their involvement in lending but they are doing it much too early,” says Lamacchia.

For details on how loan limits will affect Massachusetts Real Estate visit the New England Real Estate Blog.

About McGeough Lamacchia Realty:
McGeough Lamacchia is the #1 Listing Agency in Massachusetts and named one of the Top 100 Real Estate Teams in the country by RealTrends. They are a full service real estate agency serving Massachusetts and New Hampshire.

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