The Federal Housing Administration has issued its maximum loan limits for 2014 and it is undoubtedly bad news for the housing market. The link below has all the details, including a map showing where the deepest cuts will take place. The map shows more pain for the southwest, including California and Arizona.
For example, the maximum FHA loan will be cut from $$346K to $271K in Maricopa County, AZ and $500K to $355K in Riverside County, CA.
Why does this matter? It matters because FHA loans are much easier to obtain and require less money down. Homes that could be purchased with an FHA loan today will only be available for purchase via a conventional loan in two weeks. Tougher financing and larger down-payments mean less buyers and fewer buyers mean a softening housing market.
For homeowners who were counting on continuing appreciation to get them above water, this is very bad news. The FHA is not doing any favors for the housing market or homeowners with its move to drastically cut maximum loan amounts.
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