Just announced, the Federal Housing Finance Agency (FHFA) is increasing conforming loan limits for mortgages.. Every year, as required by the Housing and Economic Recovery Act (HERA), Fannie Mae and Freddie Mac adjust the conforming loan limit based on the change in the average U.S. Home. Due to the decline in property values from the housing crisis, the conforming loan limit for one-unit properties had been stuck at $417,000 for 10 years until 2017 when the FHFA bumped up the loan limit to $424,100.
The new conforming loan limit for a one-unit will be set at $453,100. This was decided on due to an increase of 6.8% in home values since the third quarter of 2016 resulting in the FHFA increasing the conforming loan limit by 6.8% to match. For high cost areas, HERA permits a max limit equal to 150% of the conforming loan limit giving a high balance loan limit of $679,650.
While this is the max high balance loan limit, it is important to check the loan limit in the county which you are purchasing a home as it may be lower than $679,650. For example, San Diego County’s loan limit for a single unit will be $649,750. (Alaska, Guam, Hawaii, and the US Virgin Islands have higher loan limits but for the sake of this post we are just looking at the continental United States.)
The conforming loan limit for 2-4 unit properties are higher depending on the number of units. For a 2-unit property the loan limit is $580,150, for a 3-unit property the loan limit is $701,250 and for a 4-unit property the loan limit is $871,450 with the high balance loan limit for high cost areas being $870,225, $1,051,85, and $1,307,175 respectively. Once again, these vary by county, so be sure to ask your loan officer what the county limit is for your property.
So why does this matter? For one, this is a sign that the housing market is healthy. The increase in loan limits last year was the first change in 10 years and now we have another increase a second straight year. This shows that home values are appreciating and loan limits are changing to follow suit. And two, more homes will fall within the new loan limits giving more home buyers more attractive financing options.
Once a loan amount goes over the conforming loan limit, borrowers must find a jumbo loan program (for high cost areas, borrowers have high balance loans before they are forced into jumbo loan programs) that typically have more stringent underwriting standards. When you move into jumbo loan programs, low down payment options become sparse, debt to income ratio requirements are tighter and additional reserves are generally required.
As of right now the Veterans Administration (VA loans) loans and Federal Housing Administration (FHA loans) have not made any announcements in regards to raising their loan limits but it is expected for them to follow suit just as they did in 2017.
If you are reading this and thinking, “Great, I just purchased a home and barely missed the cut off on the old loan limits but if I had waited just a few months I could have got a better loan with the new loan limits”. Don’t worry. You can always refinance your loan and take advantage of the new loan limits. Give Bluefire Mortgage a call today at (760)930-0569 and ask to see if refinancing would make sense for you.