The expected drop in FHA loan limits has been announced. Properties must be under contract by the end of the year, with the rate registered and locked in, to use the old FHA loan limits, when the house closes in 2014.

Anyone searching or selling in the $275k-$400k range will be in the most affected section of the market, as today’s FHA loan with 3.5 % down would allow the purchase of a home up to $356,959 with only the minimum $10,709 down. Many people will not qualify to take advantage of a 5% down conforming loan. The drop in loan limits will tighten everything up after January 1, and make sellers anxious, so expect a flurry of sales as this takes FHA loans out of the financing for that sector and leaves the Conforming loan limit of $417k as the next limiter/qualifier.

I would expect fewer decent houses to choose from through the first quarter, with old inventory, rejected by others, and fewer properties going to market until the end of the school year.

“FHA has announced that beginning January 1, 2014, the FHA loan limit in Maricopa County single family residence will decrease to a maximum of $271,050 from the current maximum loan limit of $346,250 (the decrease is in effect for all other AZ counties except Coconino). But, what does this mean to you?

With 3.5% down, a buyer will be able to purchase a home for $280,850 or less, with a maximum loan amount of $271,050.00.

This will have a huge impact on buyers and sellers of homes priced between $280k and $400k.  If you can get under contract before the end of December 31, 2013, you can still use the current maximum limit of $346,250. The scrambling starts now for both buyers, and those hoping to sell.”