Categorized | Finance and Mortgage

Changes in Loan Limitations Cause for Growing Concern in Housing Market

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Many real estate experts are expressing concern over the possible effects of the United States government’s decision to reduce limits on loan caps for FHA loans. The FHA loan caps dropped more than ten percent after the government failed to renew the policy that had allowed for increase limits.

The government has cited that the reason for allowing the increased limits to expire is that it would like to bring greater privatization back to the mortgage industry. Over the past few years, the government stepped into the mortgage market by taking over Freddie Mac and Fannie Mae. In an effort to soften the crashing real estate market, the government opted to increase the cap so as to prevent massive declines in housing prices.

With the latest decision to revert back to the previous cap, real estate experts are very weary of the potential negative impact that could be experienced in the national residential property market. Buyers have long preferred FHA loans, as they only require a three and a half percent interest loan.

With the reduced limits on FHA loans, however, many buyers will have to instead take out a jumbo loan. Jumbo loans generally require a far greater down payment, which is simply not possible for some potential homeowners. Many jumbo loans require a twenty percent down payment in order to receive government backing.

The government currently backs roughly ninety percent of all mortgages in the United States. Privately backed mortgages generally have higher interest rates and borrowing costs. With that said, it is believed that the reduced government limits will cause property values to drop even further.

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About Drew Wilson

Drew focuses on the Commercial and Mortgage/Finance categories.

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