Anyone in home real estate knows that the FHA program -- once the ugly duckling of the mortgage market -- has turned into one of the hottest sources of financing even in relatively high cost housing markets on the West and East coasts.

FHA loan limits are way up, credit standards and debt-to-income ratios are generous, and competitiors like Fannie Mae and Freddie Mac keep raising costs on their mortgages because of what they call “adverse” market conditions.

Last week, FHA leaders gave their first peek at how they'll be handling the dozens of new responsibilities given to them by Congress in the recently approved Housing and Economic Reform Act.

Tops on the list: What to do with loan limits. That's a major issue in dozens of markets where home prices are well above national averages. So here's what's coming: The current, temporary nationwide limit imposed by Congress's economic stimulus package last February will remain in place through December 31st.

As of January 1, the limit will fall back to $625,500 in the highest priced housing markets. Now you may think that's a step backwards, but remember: Prior to the temporary economic stimulus legislation, the top FHA limit was around $363,000, while Fannie Mae and Freddie Mac's limit was $417,000.

For areas with lower prices, the limits will be set by FHA later this year based on a formula provided by Congress: 115 percent of the median sale price of homes in the metropolitan market. So if your property is located in an area where the median price is, say $350,000, the new maximum FHA mortgage will be $402,500.

Some other key changes touched on by FHA leaders in presentations to a Mortgage Bankers Association of America conference in Washington:

Starting January 1, the minimum downpayment for an FHA loan will be 3.5 percent. That's a half point higher than the current minimum, but Congress wants to make sure borrowers have a real investment in the house they buy.

Borrowers can still get help with that downpayment, such as gifts from relatives, local government and trade union homeownership programs -- but starting October 1 -- not January 1 -- they won't be able to use any of the popular downpayment assistance programs run by organizations that funnel “gifts” from home sellers to buyers. Organizations such as Nehemiah, Incorporated and Ameridream will no longer be able to provide seller-funded gifts in connection with FHA mortgages.

So if you're a home buyer -- or a real estate or mortgage professional working with home buyers -- keep that October 1 deadline in mind.

Published: August 11, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.