Conforming Loans Increase for the 3rd Year in a Row

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Conforming Loans Increase for the 3rd Year in a Row

For the third year in a row, the conforming loan limits have increased. This is in direct response to the continuing rise in home values. the Federal Housing Finance Agency (FHFA) has increased the limits for mortgages backed by agencies that cover the vast majority of the home loans issued in the U.S.

The 2019 increase will match 2018’s percentage of increase, with a 6.9 percent jump increasing from $453,100 to $484,350. This will take effect everywhere except for 47 counties in the U.S. The first rise in a decade took place in 2016, the rise was just 1.7 percent from $417,000 to $424,100.

What exactly is a conforming loan limit?

The agencies set the amounts they are willing to back for homes in designated areas of the country. Typically, as home prices rise, so will loan limits.

early in 2018 home prices shot up quite a bit and they flattened in some areas while others saw a decline. This was a result of loan limits and the limited ability to allow home values to increase. An Increase in the limits is important to homebuyers, accommodating the rising home prices and allow them to borrow more when using a conforming loan. Lifting the limits will put more buyers into the housing market again and increasing home values in 2019.

“If house prices have gone up by 7 percent, then you need a 7 percent higher mortgage. It’s pretty automatic. Every time prices rise, the FHFA raises mortgage limits,” says Ed Golding, former FHFA commissioner.

The FHFA bases national conforming loan limits off the average U.S. Home values between the third quarters of 2017 and 2018 saw an increase of 6.9 percent. Therefore, there was a need to increase loan limits.

Homebuyers that need more than what a conforming loan can offer will need a jumbo loan. Jumbo loans typically have more stringent underwriting rules, require an excellent credit score and are privately-backed. With no federal agency backing the loan, lenders assume full responsibility, which increases their risk. While there’s no limit to the amount of money you can borrow with a jumbo loan, it will depend on your employment history, assets, and credit history for qualification.

Limits for high-cost counties

In about 100 counties deemed high-cost areas, which include New York, Rockville, Maryland, and San Francisco, the maximum loan limit is 150 percent higher than the baseline limit for the rest of the counties, this is the maximum  FHFA allows. These high-cost areas will also see a 6.9 percent increase in 2019, from $679,650 to $726,525.

“Higher conforming loan limits are a reflection of rising real estate prices,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “But the benefit of higher loan limits accrues to those taking a mortgage of between $453,100 and $484,350, or $679,650 to $726,525 in designated high-cost markets, and won’t impact many first-time buyers.”

Higher loan limits might seem like a way to increase real estate sales in our current sluggish market, this probably won’t be the case in most of the country. Lack of entry-level housing and rising rates are holding back many buyers resulting in a tight market. In areas of the west coast and parts of the east coast that are higher home prices and not in one of the 100 counties that are high-cost areas, this will help to get the market moving again.

S&P CoreLogic Case-Shiller released their 20-city home price index on Tuesday, revealing annual gains in home values of 5.5 percent in September, a decrease of .2%, from 5.7 percent in the previous month, revealing 6-month downward trend home prices.

“Don’t expect the higher loan limits to have a measurable impact on the housing market, where the real issues are that home prices and mortgage rates have both increased at a pace that is turning off, or squeezing out, would-be home buyers,” McBride says.