It’s that time of year again, when the FHFA announces the conforming loan limit for the upcoming year. And like last year, it’s going up!
This marks just the second increase in the past decade thanks to that pesky housing crisis that happened.
But this year-over-year increase is a lot more significant than last year’s more nominal rise from $417,000 to $424,100.
Because home prices have been on a tear lately, loan limits are getting a major boost. And it could be enough to put a lot of borrowers back in the conforming zone, which could amount to some savings.
The conforming loan limit is the max loan size accepted by Fannie Mae and Freddie Mac, so it’s important for borrowers to stay at or below this level to receive the most favorable mortgage rate pricing.
Home Price Gains Give Loan Limits a Big Boost
- Due to a 6.8% rise in home prices
- Between the 3rd quarter of 2016 and 2017
- The conforming loan limit will jump to $453,100 from $424,100
- The high-cost loan limits will also rise to $679,650 from $636,150
The FHFA found that property values increased by 6.8% between the third quarter of 2016 and 2017, which will lead to an increase in the baseline maximum conforming loan limit by the same percentage.
That means homeowners will be able to borrow as much as $453,100 come January 1st, instead of the current $424,100.
Additionally, the high-cost loan limits are also going up. The new ceiling loan limit for one-unit properties in the highest-cost areas will rise to $679,650, which is 150 percent of $453,100.
For example, Los Angeles home buyers (and owners looking to refinance the mortgage) will be able to obtain a conforming loan, those backed by Fannie Mae and Freddie Mac, as long as their loan amount doesn’t exceed $679,650.
That’s up from the current ceiling of $636,150. This means a home buyer coming in with a 20% down payment can purchase a property as expensive as $850,000 as opposed to around $795,000 as it stands now.
Mortgages At/Below Conforming Limit Might Be Cheaper
- Homeowners who took out jumbo loans originally
- Might be able to refinance into conforming loans if they were close to the cutoff
- Especially if they paid down their loan balances significantly since then
- That might result in a lower LTV as well which could produce a lower mortgage rate
Aside from having more financing options by staying within the conforming limit, it could also make such borrowing cheaper.
Generally, you might find that conforming loans are priced about a .25% lower than jumbo loan rates, while high-cost conforming loans might be an .125% lower than jumbos.
Instead of a rate of 4.25% on a 30-year fixed mortgage, you might be able to lock in a rate of 4% or 4.125% instead. Or pay lower closing costs.
Aside from saving some money, it could make it that much easier to qualify for a mortgage, and potentially stretch your affordability a bit.
Additionally, those who purchased homes recently with jumbo loans might be able to refinance into conforming loans, assuming it makes sense to do so.
For example, if you bought a home for $850,000 last year and put down 20%, you’d have a loan amount of around $675,000 or so today.
If you live in a high-cost region such as Los Angeles, Orange County, or San Francisco, your loan will be considered conforming in 2018. Same goes for other high-cost areas throughout the country.
In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the baseline loan limit will also increase to $679,650 for one-unit properties, and as high as $721,050 in pricey Honolulu.
The takeaway here is that more borrowers will be able to keep their mortgages in the conforming realm, and existing borrowers may want to take a look at their mortgages too to determine if any savings are possible.
If the 2018 mortgage rate forecast holds true, it could be a godsend for borrowers with big loans looking to save even more money.
This is also good news for banks and lenders, who will likely see a boost in origination volume as a result of this change.
You can see the full list of county loan limits here.