FHA recently announced the new FHA Loan Limits for 2014. The limit will be $625,500, which is lower than the limit in 2013 of $729,750. The new 2014 FHA loan limits will be effective for any case number ordered on or after January 1 2014. Below is a table of the FHA loan limits for several southern California counties.
This drop in the FHA loan limits is a result of the expiration of the formula used according to the 2008 Economic Stimulus Act. While the limits in Orange County are lower, they are still fairly high compared to where they were prior to 2008. In 2007, the FHA loan limit in Orange County was $362,790, so at least we didn’t drop down to that level. The drop down to $355,350 in the Inland Empire counties of Riverside and San Bernardino will have an effect as well.
There are still several advantages that FHA has over Conventional financing in Orange County.
- FHA is flexible with FICO scoring (credit score), especially for loan amounts greater than $417,000.
- FHA has shorter “Seasoning” periods after foreclosure or bankruptcy. FHA only requires a 2 year wait period after a bankruptcy or 3 years after a foreclosure. Conventional financing requires 4 years for a bankruptcy or 7 years after a foreclosure.
- FHA allows for higher “debt to income” ratios versus Conventional financing. This means an Orange County home buyer will qualify for a higher purchase price with an FHA loan versus Conventional financing.
- FHA only requires 3.5% down payment. Conventional financing requires 5% down for loans less than $417,000 and 10% down for loans greater than $417,000.
So, this all sounds awesome for FHA. So then why would someone still choose a Conventional loan versus an FHA? Well, all things being equal, a typical FHA borrower will have a higher payment than a Conventional borrower because of the higher FHA mortgage insurance rates. Basically, there is a trade off for putting 3.5% down or pushing the purchase price higher than a Conventional loan would allow.
Which Home Loan Program is Best for Me?
It depends. Since no two Orange County home buyers are exactly the same, it is important that the first step in the home buying process is a consultation with an Orange County loan officer who can prepare custom loan scenarios, along with a thorough analysis of your financing options. A Side by Side Analysis will help the home buyer learn what their best choice will be.