Builders Say Federal Loan Limits Dissuade Buyers Who Want Low Down Payments

November 9, 2016

Each housing market has a magic number, a price based on median home value. The buyer pool is considerably larger for homes selling below that figure.

The Wall Street Journal reports that builders and developers say that price limits set by the government make it difficult to construct homes for buyers who want to pay down payments of less than 10 percent.

The FHA, which has adjusted its loan limit over recent years, is now tied to the median home value for a given market. WSJ highlights a new community in Ontario, Calif., where townhouses valued below $378,000 are selling twice the rate as townhomes valued at more than $378,000.

Builders and developers in many higher-cost housing markets still recovering from the bust—including the Inland Empire, Las Vegas, Sacramento, Calif., and Phoenix—say the price limits set by the federal government make it nearly impossible to deliver homes that cater to buyers looking to purchase with FHA loans. “It’s basically put a lid on the market,” said Michael Maples, co-founder of Trumark Cos., a California builder and developer. “For builders, if you’re above that FHA limit your buyer pool is significantly lower.”

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