Will Lower FHA Loan Limits Affect Sales in Colorado Springs?

For many years now, FHA loans could be used to purchase homes in Colorado Springs all the way up to $325,000. Actually, that was the loan limit, so you could theoretically use FHA for a higher purchase if you brought more down payment. FHA has been popular, because of several factors.

• FHA buyers could use gift money for part or all of their down payment, a big help for parents trying to help their kids get started on owning their own home
• The down payment required is only 3.5%, so you don’t have to save until your kids are out of the house to afford your first home.
• The approval rules are a bit easier for FHA. They are more accepting of some forms of credit dings (such as bankruptcy, foreclosure, etc).

The down side of FHA financing is mortgage insurance. Both up front and monthly. Forever. Or at least until you refinance out of an FHA loan. It effectively adds 1.35% to your payment calculation, so while our current rates are in the low 4’s for FHA, after mortgage insurance, your payment is well over 5%. Not that even over 5 is a bad number, but you just have to know it ahead of time, or else be surprised when you make your loan application.

Now FHA is lowering the amount they will loan in El Paso County (Colorado Springs) to $271,000. In 2013, there were 10,682 homes sold by the Pikes Peak Association of Realtors, and 1,546 or 14.5% of  those used FHA financing. But a closer look shows that only 129 homes, or 8.3% of the homes that sold using FHA financing (or 1.2% of the total) sold for more than $271,000. In comparison, 32.5% of the homes sold used VA financing, which is the zero down payment program available to active duty military and veterans, and over 30% of the VA loans were over $271,000.

So contrary to what would seem logical, the impact of dropping the FHA loan limit by almost 17% is probably not going to be very large. While I don’t know it for a fact, of those 129 homes, I’m guessing if FHA had not been available, someone might have found another way to make the deal happen. So my bet is that we really aren’t going to see an impact.

Got questions about FHA, VA, or for that matter any other type of financing or real estate in Colorado Springs? Call Rick Van Wieren at RE/MAX Properties at 719-331-7675 or email rick@ricksellscolorado.com.