FHA loan limits leave borrower out in the cold
Wonk reader Josh, an attorney who lives in Howard County, was hoping to refinance his first and second mortgages into one FHA "conforming jumbo" loan and enjoy lower monthly payments. But he can't -- and it has nothing to do with his home value or his credit score.
The trouble is that he needs a $590,000 loan. The limit in Howard County, like all of the Baltimore metro area, is $560,000.
But Josh is within walking distance of Montgomery County, where the limit is just under $730,000. That's true everywhere in the D.C. metro area, including Prince George's County, where typical homes go for a lot less than in Howard.
This makes no sense to him.
"Metropolitan Maryland is arbitrarily divided," he said in an email to me. "I live in Howard County, about one mile from the MoCo line and 14 miles from the DC border. I am about 25 miles from Baltimore, but my home is lumped into the Baltimore market."
The difference a mile makes: $400 a month. That's how much he could lower his payments if he could go from a first mortgage with a 6.25 percent interest rate and a second mortgage at 7.5 percent into a single loan with a 5 percent rate.
"I assume a lot of homeowners in Howard and Anne Arundel are in the same predicament. Can anything be done?" he asks. "Why not just combine Baltimore-DC into one FHA district?"
The U.S. Department of Housing and Urban Development, which oversees FHA, says it sets limits by metropolitan statistical area. Baltimore and Washington are separate regions by that measure.
The two cities and their satellite suburbs are in the same "combined statistical area," a federal nod to the significant economic ties between the two. But HUD goes with the smaller metropolitan statistical areas where ones exist.
"The program staff tells me the MSA decision came from Congress," says HUD spokesman Lemar Wooley.
HUD seems to go smaller where it can, rather than larger. Montgomery has the same limit as the Washington metro area, but it's actually grouped in the smaller Bethesda-Gaithersburg-Frederick metropolitan division, a subsection of the D.C. MSA.
And some parts of Maryland are simply MSA-less. Talbot County is part of a micropolitan statistical area. Several counties, such as Caroline, are on their own.
However you combine areas for the purposes of FHA loan limits, you're going to end up with some pretty big ranges. Baltimore City's median home sale price in April was $135,000, and yet its limit is the same as Howard, with a $340,000 median price.