The Department of Housing and Urban Development wants to raise the maximum FHA loan limit, which -- if approved by Congress -- would allow more homebuyers to take advantage of the program and create more competition in the mortgage marketplace.
HUD Secretary Andrew M. Cuomo said last week that the Clinton administration would place in its 1998 budget a proposal to raise the Federal Housing Administration maximum to $227,150.
That figure would put it on a par with conventional limits made by giant mortgage lenders Fannie Mae and Freddie Mac.
Current FHA loan maximums vary depending on metropolitan areas, with the ceiling on the highest possible loans in high-cost areas set at 75 percent of the maximum conforming rate. That rate -- which the Baltimore metropolitan area falls into -- was just raised to $170,362.
But if HUD gets its wish, by removing the varying limits and adding more than $55,000 to its ceiling, about 3 million more families could qualify for FHA loans over the next five years.
"For new construction, it's pretty difficult, almost impossible, to get into a single-family detached house [right now] with FHA," said James Kelly, spokesman for the Baltimore office of HUD.
"You're pretty much limited to townhouses and condos. Even for resales, [with] a lot of suburban houses -- particularly detached -- you're really out of the market with FHA."
That's one of HUD's reasons for asking for the increase. It says its loan limits have failed to keep up with rising home values, causing the agency to lose mortgage volume over the years. In 1970, according to the agency, the FHA accounted for 24 percent of home mortgage volume; by 1996 its share had fallen to 10 percent.
FHA loans are particularly popular with first-time homebuyers, those who can't afford to make a large down payment or have debt ratios that may not satisfy Fannie Mae or Freddie Mac conventional loan standards.
Differences in loans
Among the differences between FHA and conventional loans are:
* FHA loans require a 3 percent down payment, lower than the minimums required by conventional lenders.
* Buyers can borrow their closing costs and roll them into their mortgage.
* FHA permits homebuyers to use gifts from family members and nonprofit groups to make their down payments. Conventional loans usually require down payments to come from a person's own funds.
