THE MORTGAGE BROTHERS SHOW
FHA Loan Limit Increased to $331,760 for most Arizona Counties
In Arizona and most of the USA the 2020 FHA loan limits have been increased from $314,827 to $331,760. Below we cover this in more detail.
*The following transcript has been edited for clarity.
Eddie Knoell — I’m Eddie Knoell.
Tom Knoell — And I’m Tom Knoell.
Eddie — We’re the Mortgage Brothers team and this is our show everyone. We’re right here in Phoenix, Arizona and today we have a great announcement. We’re following this up from an announcement that we gave last week. We just learned something new about FHA loan limits. Tom?
Tom — FHA loan limits have increased and I don’t know if we did this last week or not with conventional, but this is like giving our borrowers a raise. This is a really, really big, big, big deal. So last week we announced that conventional loan limits had increased. This week we’re announcing FHA loan limits have increased.
Eddie — Effective January 1st, 2020.
Tom — That’s right. So really, tell me what you think. So here we are in early December. By the time this podcast comes out, it’ll be still early-ish December. We could probably start an FHA file within the next week and still be fine.
Eddie — Yeah. We could get someone prequalified. There’s a procedure. But it’s ordering an FHA case number that we’d wait until January 1st to order.
Tom — Right.
Eddie — So as long as someone’s closing January 15th.
Tom — Yeah. So by the time you’re hearing this podcast, we’re going to be ready to help you with any type of FHA loan that you need that is within those new high limits. So what are those high limits Ed?
Eddie — Okay. So if you’re a single-family residence that limit is now $331,760.
Tom — Yeah. So $331,000 that’s a big deal. Because it used to be $314,827. So what did that mean for our borrowers from a purchasing price standpoint?
Eddie — Okay, so FHA requires three and a half percent down minimum. So for 2019 at the old limits. If you purchase a home for $326,000 you could put three and a half percent down and be at the 2019 limit. Now you can purchase a home at $343,000, put three and a half percent down and be at the 2020 loan limits. So $343,000. That’s almost $18,000 more in purchasing power than last year.
Tom — So one of the reasons why that’s such a big deal is because a lot of our FHA borrowers have the minimum down. So the classic call is, I have a credit score that’s not really favorable in the conventional market. I know I need to go FHA and I want to max out what I can buy. So Tom, what can I buy? And I’ve always been limited to the $314,000 loan. So we take that old number, add the minimum down payment. Then you were always kept at that number. So the 326. And I had multiple borrowers last year, or actually, this year say, there were homes just out of their price range. They couldn’t get a loan to secure property more than that. And so I guess what we’re saying is the former $326,000 max home price is now $343,000 max purchase price.
Eddie — Yeah. A lot of people out there are probably wondering, well okay, just remind me what the FHA loan is kind of about. What are the advantages? Who basically is this loan for? When do we recommend an FHA loan and just a high level?
Tom — Yeah. Well, we always go to credit and NDTI. So credits going by your credit score. Typically anything above 700 leans towards conventional. Anything below 700 leans towards FHA. And what we mean by lean is, there’s better pricing. You have a lower monthly payment for an FHA loan versus a conventional if your credit score is below 700.
Eddie — Right. The price is very good on FHA. Even with the FHA mortgage insurance, which is mandatory, no matter how much you put down, but even with the mortgage insurance, the average is a great product for borrowers 700 or a lot less on a credit score.
Tom — Right. Exactly. And we don’t get into a lot of this, but also a very close second is debt to income. Our borrowers that have slightly higher debt to income ratios are treated a little bit better with FHA than conventional.
Eddie — That’s good.
Tom — And sometimes every little bit counts. This is awesome. We’re very excited about this and hopefully, you guys are too.
Eddie — Yeah, I’m going to mention a couple more things. You could have an unlimited number of medical collections and FHA does not care, does not require them to be paid. So there are some things that they’re very lenient and that’s one of them, medical collections. Another is the seasoning requirements, the waiting periods, if you have a foreclosure or short sale, that’s a big deal. It’s only three years on an FHA loan, whereas conventional, it’s seven years on a foreclosure and four years on a short sale. So a lot of good reasons to go FHA for a lot of people, and that’s why these loan limit increases are going to be helpful.
Tom — Awesome.
Eddie — So what about now? There’s not just single family residences out there. FHA will do loans on a two unit property, a three, and a four unit.
Tom — Right. I didn’t think that they did loans on investment properties.
Eddie — So you have to occupy one of the units.
Tom — Right. So as long as you occupy, as your primary residence, one of the units, you can purchase a duplex, triplex, or fourplex using FHA. And we do those quite frequently, actually. It’s a wonderful way to get into your first home, typically, and start your investment portfolio.
Eddie — So you want to go over those limits?
Tom — Yeah, so the loan limits for the two unit is going to be $434,000. And this is stuff that literally just came out today. So these may tweak a couple hundred dollars give or take. So give us just a little bit of leniency if for some reason they’re not exact. But two unit properties have a loan limit of $434,800. The three unit has a loan limit of $513,450, and the four unit is $638,100. So you can buy a fourplex for almost $650,000 using FHA.
Eddie — Just three … you can buy a fourplex, live in one of the units, only put three and a half percent down. That’s awesome. I mean there’s-
Tom — Yeah it is. It is awesome. And just for giggles, I don’t know if we do math while we’re doing this show but for just giggles, I was going to do the down payment. $638,000, three and a half. So for $22,000. For $22,000 down payment, you can max out a fourplex.
Eddie — Yeah.
Tom — Almost $650,000. So there’s a lot of investors that are probably drooling saying, I wish I didn’t have a primary occupancy already because I’d love to do that.
Eddie — Yeah. A lot of first time home buyers have done that. It’s one of their ways of how they actually get into real estate and they let the other tenants on these other units that they have pay their mortgage.
Tom — Right. Awesome. All right. Anything else?
Eddie — I can’t think of anything. We’ll keep you guys informed and of course always let us know if you have questions, email us. Call us. We’re here to help.
Tom — We’re local. We’re here to help you anytime.
Eddie — That’s right. Everyone have a good week.
Tom — Okay, thanks, folks.
Eddie — Hey guys. Thanks for listening to the Mortgage Brothers Show. Please let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to email@example.com or yours truly at firstname.lastname@example.org. And be sure to ask us for a free quote on your next mortgage. Tom and I will personally work with you and help you through the whole process.
Signature Home Loans, LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans. NLMS 1007154, NLMS number 210917, and 1618695. Equal housing lender.