The Federal Housing Administration has reduced the maximum loan amount on FHA loans in 650 counties across the country. The new limits went into effect Jan. 1.
In high-cost areas the loan limit was reduced from $729,750 to $625,500. You may think that's not such a big deal, but it affects the purchasing power of many buyers with low down payments in cities like New York and San Francisco.
The FHA also drastically reduced the loan limits in some counties. Limits in Salt Lake County, Utah, for example, dropped from $729,750 to $300,150.
Fannie Mae and Freddie Mac also are considering reducing their loan limits from $417,000 to $400,000 in most markets, but have not made a final decision.
These reductions could hurt the housing market as buyers who want to buy outside the loan limits would face stricter underwriting requirements, says Matt Hackett, operations manager for Equity Now, a mortgage bank in New York City.
"In general, the reduction in explicit and implicit government-backed loan amounts pushes buyers on the margin into 'non-agency' loans, which tend to have more stringent qualification standards, reducing the overall pool of buyers which can qualify for a loan," he says.