The Federal Housing Administration raised the mortgage limits to a maximum of $729,750 for 14 high-cost counties in California, as the government began providing aid to homeowners required by the recently enacted economic-stimulus package.

The upper mortgage limits also will apply to loans purchased or guaranteed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, FHA officials said.

FHA officials predicted the increases in California would aid about 33,000 individuals. The new loan limits will be in effect through the end of this year. The goal is to invigorate the market for larger mortgages, which should help push down interest rates.

Those who have applied for an FHA loan but haven't yet closed on it will be able to take advantage of the new limits. The new ceilings also will apply to people seeking to refinance into an FHA loan.

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FHA Mortgage Limits in California by County

County Name Median Home Price FHA Limit
Alameda County $995,000 $729,750
Alpine County 438,000 547,500
Amador County 355,000 443,750
Butte County 320,000 400,000
Calaveras County 370,000 462,500
Colusa County 318,000 397,500
Contra Costa County 995,000 729,750
Del Norte County 249,000 311,250
El Dorado County 464,000 580,000
Fresno County 305,000 381,250
Glenn County 230,000 287,500
Humboldt County 315,000 393,750
Imperial County 260,000 325,000
Inyo County 350,000 437,500
Kern County 295,000 368,750
Kings County 260,000 325,000
Lake County 321,000 401,250
Lassen County 200,000 271,050
Los Angeles County 710,000 729,750
Madera County 340,000 425,000
Marin County 995,000 729,750
Mariposa County 330,000 412,500
Mendocino County 410,000 512,500
Merced County 378,000 472,500
Modoc County 125,000 271,050
Mono County 370,000 462,500
Monterey County 599,000 729,750
Napa County 615,000 729,750
Nevada County 450,000 562,500
Orange County 710,000 729,750
Placer County 464,000 580,000
Plumas County 328,000 410,000
Riverside County 400,000 500,000
Sacramento County 464,000 580,000
San Benito County 790,000 729,750
San Bernardino County 400,000 500,000
San Diego County 558,000 697,500
San Francisco County 995,000 729,750
San Joaquin County 391,000 488,750
San Luis Obispo County 550,000 687,500
San Mateo County 995,000 729,750
Santa Barbara County 615,000 729,750
Santa Clara County 790,000 72,9750
Santa Cruz County 719,000 729,750
Shasta County 339,000 423,750
Sierra County 228,000 285,000
Siskiyou County 235,000 293,750
Solano County 446,000 557,500
Sonoma County 530,000 662,500
Stanislaus County 339,000 423,750
Sutter County 340,000 425,000
Tehama County 250,000 312,500
Trinity County 200,000 271,050
Tulare County 260,000 325,000
Tuolumne County 350,000 437,500
Ventura County 599,000 729,750
Yolo County 464,000 580,000
Yuba County 340,000 425,000

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FHA Single Family Mortgage Insurance Program

FHA's mortgage insurance programs help low and moderate income families become homeowners by lowering some of the costs of their mortgage loans. FHA mortgage insurance also encourages mortgage companies to make loans to otherwise creditworthy borrowers and projects that might not be able to meet conventional underwriting requirements, by protecting the mortgage company against loan default on mortgages for properties that meet certain minimum requirements--including manufactured homes, single-family and multifamily properties, and some health-related facilities.

Section 203(b) is the centerpiece of FHA's single family insurance programs. It is the successor of the program that helped save homeowners from default in the 1930s, that helped open the suburbs for returning veterans in the 1940s and 1950s, and that helped shape the modern mortgage finance system. Today, FHA One to Four Family Mortgage Insurance is still an important tool through which the Federal Government expands home ownership opportunities for first time homebuyers and other borrowers who would not otherwise qualify for conventional loans on affordable terms, as well as for those who live in under served areas where mortgages may be harder to get. In 1997, FHA insured more than 790,000 homes, valued at almost $60 billion, under this program. FHA currently insures a total of about 7 million loans valued at nearly $400 billion. These obligations are protected by FHA's Mutual Mortgage Insurance Fund, which is sustained entirely by borrower premiums.

Section 203(b) has several important features:

Downpayment requirements can be low. In contrast to conventional mortgage products, which frequently require down payments of 10 percent or more of the purchase price of the home, single family mortgages insured by FHA under Section 203(b) make it possible to reduce down payments to as little as 3 percent. This is because FHA insurance allows borrowers to finance approximately 97 percent of the value of their home purchase through their mortgage, in some cases.

Many closing costs can be financed. With most conventional loans, the borrower must pay, at the time of purchase, closing costs (the many fees and charges associated with buying a home) equivalent to 2-3 percent of the price of the home. This program allows the borrower to finance many of these charges, thus reducing the up front cost of buying a home. FHA mortgage insurance is not free: borrowers pay an up front insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.

Some fees are limited. FHA rules impose limits on some of the fees that mortgage companies may charge in making a loan. For example, the loan origination fee charged by the mortgage company for the administrative cost of processing the loan may not exceed one percent of the amount of the mortgage.

HUD sets limits on the amount that may be insured. To make sure that its programs serve low and moderate income people, FHA sets limits on the dollar value of the mortgage loan.

Down Payment Gifts for FHA Loans

The down payment for an FHA mortgage can be 100% gift funds. This is one of the key benefits to the FHA program.

Verification of the source of gift money is not required. However, it is necessary that the gift funds be deposited in the borrower's bank or savings account, or in an escrow account, prior to underwriting approval. Proof of deposit is required.

Gift donors are restricted primarily to a relative of the borrower. They can also be certain organizations, such as a labor union or charitable organization. Contact your local branch for complete information.

What Are Closing Costs?

There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:

* Attorney's or escrow fees (yours and your lender's if applicable)
* Property taxes (to cover tax period to date)
* Interest (paid from date of closing to 30 days before first monthly payment)
* Loan origination fee (covers lender's administrative costs)
* Recording fees
* Survey fee
* First premium of mortgage insurance (if applicable)
* Title insurance (yours and your lender's)
* Loan discount points
* First payment to escrow account for future real estate taxes and insurance
* Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
* Any documentation preparation fees

Streamline Refinancing for FHA Mortgages

FHA has permitted streamline refinances on insured mortgages since the early 1980's. The word “streamline” refers only to the amount of documentation and underwriting that needs to be performed by the mortgage company, and does not mean that there are no costs involved in the transaction.

The basic requirements of a streamline refinance are:

* The mortgage to be refinanced must already be FHA insured.
* The mortgage to be refinanced should be current (not delinquent).
* The refinance is to result in a lowering of the borrower's monthly principal and interest payments.
* No cash may be taken out on mortgages refinanced using the streamline refinance process.

Companies may offer streamline refinances in several ways. Some companies offer "no cost" refinances (actually, no out of pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the company pays any closing costs that are incurred on the transaction.

Companies may offer streamline refinances and include the closing costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal. Streamline refinances can also be done without appraisals, but the new loan amount cannot exceed what is currently owed, i.e., closing costs may not be added to the new mortgage with those costs either paid in cash or through the premium rate as described above. Investment properties (properties in which the borrower does not reside in as his or her principal residence) may only be refinanced without an appraisal and, thus, closing costs may not be included in the new mortgage amount.

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