Housing and Economic Recovery Act Update:

Housing and Economic Recovery Act Update:
Conforming/FHA Loan Limit Calculations

Conventional Conforming Loan Limits – Effective Jan. 1, 2009
Effective Jan. 1, 2009, new calculations will be used to derive conventional conforming loan limits in accordance with the Housing and Economic Recovery Act of 2008.

The Economic Stimulus Act, signed earlier this year, established temporary higher conforming loan limits for 2008 in areas in which the median housing price exceeded the conforming loan limit up to a maximum of $729,750. The Housing and Economic Recovery Act of 2008 makes the high-cost area concept permanent, but changes the calculation.

Calculation Formula
Effective Jan. 1, 2009, in a high-cost area, the conforming loan limit will increase to the lesser of:
• 150% of the standard conforming loan limit ($625,500 if the single-family standard loan limit is $417,000); or
• 115% of the median house price in the area (with the 2008 temporary loan limits, the calculation is currently 125% of the median house price).

NOTE: HUD has not indicated what timeframe will be considered to determine the median area house price. Because of the continued changes in the housing market, the median area house price may be significantly different throughout the year. So the timeframe used by HUD is key to determining what the actual 2009 loan limits will be.

Below is an example based on the 2008 limits (prior to the release of the temporary loan limits):

Property Type 2008 Standard Limit*
(115% of local median housing price) High Cost Area Limit
Not to Exceed 150% of Standard Limit**
Single-family $417,000 $625,500
2-family $533,850 $800,775
3-family $645,300 $967,950
4-family $801,950 $1,202,925
* 2008 standard limits are established as base limits to be indexed annually beginning 2009.

** These examples are generated using 2008 standard limits.

FHA Loan Limits – Effective Jan. 1, 2009
Earlier this year, the Economic Stimulus Act temporarily increased the FHA loan limits. As of Jan. 1, 2009, the Housing and Economic Recovery Act permanently changes the calculation for the increases to the FHA loan limits as follows:

• For single-family properties, the limit will be 115% of the local area median home price, as determined by HUD (the percentages for 2-, 3- and 4-family residences will now be determined using the same ratios that are used to calculate the conventional conforming loan limits for 2-, 3- and 4-family residences).

• The ceiling will be 150% of the conventional conforming limit for a residence of applicable size (new ceiling of $625,500 for single-family properties).

• The floor will be the greater of 65% of the conventional conforming limit for a residence of applicable size (floor of $271,050 for single-family properties), or the limit in effect for the area in 2008. This is not a change from the 2008 temporary loan limits!