The Office of Federal Housing Enterprise Oversight, or OFHEO, recently announced that the conforming loan limit for a FHA loan would not be reduced for 2008. This is excellent news for the FHA loan community and potential borrowers.
Some in the industry speculated that the decreased home prices due to the hit the housing market took would result in the conforming loan limit being reduced from $417,000.
For most of the country lowering this limit would not make much of a difference in their ability to buy a home. However, in larger markets like New York, Chicago, and Southern California, where house prices are substantially higher, even after slumping prices, lowering the conforming loan limit would make for a bleak 2008.
The conforming loan limit is the most that a FHA borrower can obtain and lowering this would cause a lot of problems for potential buyers in areas with higher cost of living. If FHA modernization bills pass in Congress, with advents of no money down FHA loans as well as higher conforming loan limits in certain areas, buyers may get even more of a boost.