Due to the drastic rise in home values all throughout most of the country, the Federal Housing Finance Agency has announced an increase in the conforming loan limits across the United States.
The announcement happened on November 28, 2017 (Tuesday) by the FHFA. This increase was done to match the 6.8 percent hike in home values. The new loan limits are set to take effect in the coming year.
This is the second straight year that the loan limits were adjusted. It is to be noted that the loan limits for conforming mortgage loans were also adjusted for 2017.Government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac shall follow these new conforming loan limits.
When the Housing and Economic Recovery Act of 2008 first established the baseline loan limit, $417,000 was the limit for most areas in the country. This level was maintained until 2017 when it was increased to $424,100.
[sc_content_link label=”Check today’s rates, click here.”]
Increase Caused by Rising Home Prices
In its 2017 third-quarter report on the House Price Index, the FHFA estimated that the average home price increased 6.8 percent from the third quarter of 2016 to the third quarter of 2017. Due to this, the 2017 baseline maximum conforming loan limit will be increased by 6.8 percent for next year.
In 2018, the new baseline conforming loan limit will be $453,100. Areas that FHFA identifies as “high cost” will have a higher loan limit. High-Cost Areas are zones whose respective median home value exceeds the baseline loan limit by 115 percent.
Take Denver, for example. Since this is considered a high-cost area, the new limit will be $529,000. The San Francisco Bay Area will have an even higher loan limit of $679.650. For the complete list of mortgage loan limits per county for 2018, click here.
[sc_content_link label=”Find the best mortgage rates, click here.”]
Changes in Conforming Loan Limits Affect the Entire Mortgage Industry
Knowing the conforming loan limits is essential for homebuyers and lenders alike. Because most mortgages offered by commercial lenders are guaranteed by Fannie Mae and Freddie Mac, these numbers will greatly affect the entire mortgage financing market.
For example, the loan limit is needed to distinguish which loans are considered jumbo and which aren’t. Mortgages that exceed the determined conforming loan limits are known as jumbo loans. Its interest rates and down payment can be higher than that of conforming mortgages.
The FHFA conforming loan limits are also important for federally-backed home loans. Take the FHA loan for example. The FHA loan limits are determined by the HUD. However, these limits are influenced by the FHFA conforming loan limits. So if there is an increase of the conforming limits, the HUD typically follows.
[sc_content_link label=”Connect with a lender, click here.”]
The FHFA’s role is to regulate the secondary mortgage market. It does this by managing Freddie Mac, Fannie Mae and the federal home loan banks. This government agency was established by the Housing and Economic Recovery Act of 2008.
To know more about your area’s conforming loan limit, talk to a lender near you. You may also learn more about conforming loans and non-conforming loans by asking your lender about it.
Many factors affect your mortgage loan. The FHFA conforming loan limit is just one of them. To have a better understanding of your mortgage, do not hesitate to ask your lender. Adequate knowledge on how mortgages work will help you find the right financing for you.