Part 2 in the series.

The FHA limits were set at $417,000. Foreclosures created a glut of supply on the market. Property values are still sky-high in sunny Califulofnuts. The FHA responds with temporarily increasing the limit from $417,000 to $720,000 on their FHA loans.

What does this mean?

I’m glad you asked.

This means my next acquisition can be secured under an FHA loan. 30-year fixed with the lowest possible interest rate, backed by Uncle Sam. From yesterday, the discussion was centered around interest rates differences between jumbo and FHA loans.

Can a 1 point difference really impact the bottom line?

Maybe not so much on a $50,000 home. On a $700,000 fourplex the difference is large. On a $700,000 loan, the difference between 6% and 7% interest rate is $416/month. Yes, this directly impacts monthly cashflow. It also impacts the amount of income necessary to qualify for the loan. Six percent requires less income than 7 percent for the same property.

For these discussions: the figure $700,000 has been used. Per the MLS, this reflects the current average price for a fourplex. Yes. Three years ago, a fourplex was priced at a minimum of $800,000. Thanks to a depressed market, the values of fourplexes have dropped.

This year, they will drop even more. Starting in April, more fourplexes will fall onto the market.

That’s for tomorrow.

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