A first-time homebuyer can now buy a $1 million home with only 3.5% down!
This is because the FHA just released its new loan limits for 2022: (1) Low Balance Limit (for most of Texas): $420,680; (2) High Balance Limit (for most of coastal California): $970,800.
FHA Low Balance Limits
NUMBER OF UNITS:
1 Unit
2 Units
3 Units
4 Units
2021 LOAN AMOUNT:
$356,362
$456,275
$551,500
$685,400
2022 LOAN AMOUNT:
$420,680
$538,650
$651,050
$809,150
FHA High Balance Limits
NUMBER OF UNITS:
1 Unit
2 Units
3 Units
4 Units
2021 LOAN AMOUNT:
$822,375
$1,053,000
$1,272,750
$1,581,750
2022 LOAN AMOUNT:
$970,800
$1,243,050
$1,502,475
$1,867,275
This is great news for many buyers with limited cash and for agents whose FHA clients were priced out of their markets, and it is even better news for loan officers – as some “so called’ FHA specialists earn 4% or more for the FHA loans they fund (I might add that those “specialists” also offer much higher rates in order to subsidize those fat commissions).
I say “so called” FHA specialists too because FHA loans are not that much more difficult than any other loan, and it is comical that some loan officers have convinced the world that they are.
As a reminder, FHA rates are much lower than conforming rates and we can close FHA loans in 14 days all day long because … they are not that hard.
Anyway – are these higher loan limits good for the economy overall? Hell no!
Here’s why:
Subsidies Further Inflate The Market! As I reminded everyone in this recent blog about Conforming Loan limit increases, increases in loan limits are really just subsidies, in the form of loan guarantees, for borrowers who would not otherwise qualify for purchases this large and such subsidies ALWAYS end up pushing up prices. This is great for homebuyers now, but horrible for homebuyers in the future.
Borrowers Walk When They Have No Equity! When borrowers have equity, they will beg, borrow and steal to stay in their homes – like we saw during and after the COVID crisis. When borrowers have no equity, they will walk away from their homes with even the flimsiest of justifications like we saw after 2008. Hence, FHA buyers with only 3.5% down can see their equity dry up very easily with even a slight correction in the market. And – if that correction holds, we could see a mass exodus of FHA buyers bailing from their obligations, and causing a mass of foreclosures which could devastate the housing market.
FHA Can’t Afford It! I got this data and this blog idea from this excellent National Real Estate Post video – Massive New Loan Amounts, that I recommend watching. The host, Brian Stevens, points out that the FHA is currently insuring 7.8 million forward and reverse mortgages that total $1.2 trillion in debt. He then further points out that the FHA has almost $100 billion in its insurance fund – so the FHA is fine, right? Nope. Stevens reminds us that the FHA had a similar amount in percentage terms in 2008 and they blew through it all and went into a deficit in short order – BUT the loan limit was only $362,00 then! With today’s $970,000+ loan limit, that insurance will dry up faster than a puddle of water in Death Valley in July!
If You Ever Get Caught By An Anaconda, Hold A Whiskey-Soaked Rag Over Its Nose, And It Will Release You Instantly! I read that on Quora yesterday and had to share it. Apparently, all snakes can’t stand alcohol. So, if you are hiking in the Amazon jungle, make sure you have a companion and some whiskey (beer won’t work, btw – according to the now dead scientist who insisted it would).
Happy Holidays!
OK – I actually only have 3 reasons why higher FHA loan limits are not always a good thing, and the higher loan limits probably won’t DESTROY the economy… but “5 Reasons” and “DESTROY” made for better clickbait, and the gist of my blog is accurate and hopefully interesting and informative. 😊
