For the first time since 2005, the Federal Housing Finance Agency (FHFA) significantly increased 2018 Conforming Mortgage Loan Limits by 6.8% to keep pace with home price appreciation. This signals confidence in the housing market.
According to the FHFA website, “the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2018 for one-unit properties will be $453,100, an increase from $424,100 in 2017.” Adjusted dollar amounts differ slightly and are county specific.
To knowledgeable observers, the FHFA increased loan limits relays a confidence in the country’s housing market. Listen to Craig Furfine, Clinical Professor of Finance at Kellogg School of Management, Northwestern University: “It tells me that housing prices have done well over the last year. As such, it’s a lagging indicator of things going right with the economy.”
From 2006-2016 the loan limits adjustment for 1-unit properties basically remained flat at a one-unit baseline loan limit of $417,000 and ceiling loan limit of $625,500.
The Housing and Economic Recovery Act (HERA) of 2008 requires baseline conforming loan limits be adjusted annually for Fannie Mae and Freddie Mac, reflecting average U.S. home price changes.
“We believe that the increase in loan limits is welcome news for borrowers, mortgage lenders and the housing industry in the face of strong house price growth across the country,” notes Christina Boyle, senior vice president and head of Single-Family Sales and Relationship Management, Freddie Mac. “These loan limit increases can help buyers save money when getting a mortgage, especially in high cost areas improving the opportunity for everyone, especially first-time homebuyers, to get into that new home.
In fact, Freddie Mac, along with our lender partners, has made home possible for nearly 350,000 first-time homebuyers over the past year, “Boyle adds.
Chicago Realtor® Michael LaFido with CONLON/Christie’s International Real Estate, welcomes the news. “We need all the help we can get in the $500,000 and up market here in Chicago. Inventory continues to be stagnant. With loan limits raised by almost 7% that opens the market for buyers to qualify resulting in a larger pool of potential buyers for sellers,” La Fido observes. “I’m hoping that real estate agents and loan officers get the word out to buyers.”
John Schutze of Guaranteed Rate, one of the country’s leading mortgage lenders, manages the Austin, TX branch where the loan limit is $453,100 sees this helping buyers in cities like Austin which has enjoyed strong home price appreciation. “In many cities including Austin, the home price appreciation has positioned a significant number of homes in the $400,000 to $600,000 price range. This increase is a huge win, allowing homeowners to buy these rapidly appreciating homes with Conforming Loans which generally have lower down payment requirements than Jumbo Loans. It also gives buyers access to homeownership in more urban areas.” Schutze cautions that “credit requirements are still stiff even with these increased loan limits.” That’s even more good news for the housing industry.
Divorce Mortgage Pro Note:
There has been little written on the advantage of the higher FHFA limits and the impact on divorcing clients. While not impacting a huge amount of the population, this can help under some circumstances where a divorcing spouse wishes to retain a home that would previously have been jumbo. A conforming loan will have likely have a lower interest rate and more flexible guidelines.