Conforming Loan Limits Increases in 2017 Due to Rising Home Prices

The Federal Housing Finance Agency raised the dollar limit to conforming loan limts for mortgages that are going to be acquired by Fannie Mae and Freddie Mac in 2017.

This increase will help borrowers and sellers in high-cost areas across the United States. The raise is not colossal for most single-family homes it raised from $417,000 in 2016 to $424,100 in 2017. Although this was not a big increase, it is a step that has been welcomed by the real estate industry.

Conforming loan limits are important as they apply to home loans that meet Fannie Mae’s or Freddie Mac’s underwriting guidelines. These two entities are government-sponsored bodies that purchase mortgages from lenders and ensure a constant flow of money to the mortgage market. The interest rates on jumbo loans are consistently higher than the rates on conforming and FHA mortgages that fall under the cap and are more difficult to obtain.

Why has this happened?

According to the Federal Housing Finance Agency (FHFA), home prices have increased 1.7 percent above the pre-decline peak value that hit in the third quarter of 2007. Consequently, there was a 1.7 percent bounce in the baseline conforming loan limit.

Conforming loan limits are higher than the baseline cap in certain areas where home prices are especially high.    However, the limits cannot be more than 50 percent higher than the baseline limit.

According to the FHFA in higher-cost areas of the country, there will be implemented limits above $424,100. In addition, there are four statutorily-designated high-cost areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the loan limits for 2017 will be up to $636,150.

For conforming loans closed after January 1, 2017, the new nationwide baseline limits are:

• One Unit: $424, 100
• Two Unit: $543,000
• Three Unit: $656,350
• Four Unit: $815,650    

William E. Brown, the president of the National Association of Realtors has mentioned in a statement:

“Credit remains tight, but this decision will help more qualified buyers address the hurdles and high costs standing between them and the dream of home ownership.”

You can find a county-by-county list of conforming new loan limits for 2017 available on the FHFA’s website.

House Price Index

The Housing Price Index (HPI) is published quarterly by the Federal Housing Finance Agency (FHFA) and gauges average single-family home prices. It uses data received from Fanny Mae and from Freddie Mac in order to forecast prevailing trends and to estimate changes in housing affordability and foreclosure rates. The HPI serves as an indicator of single-family house price trends in the United States. The HPI uses a repeat-sales methodology, measuring average price changes in repeat sales of the same property.

According to the data Federal Housing Finance Agency, the House Price Index is up 1.5 percent during the third quarter of 2016 and the house prices rose 6.1 percent over the past year. This overall growth has pushed the index above its previous high point.

Advantages of higher conforming loan limits

The over $7,000 baseline increase offers a few advantages to potential home buyers.  The higher loan limits also create a refinance opportunity for the existing homeowners.   For those requiring a mortgage of more than $417,000, the non-conforming jumbo loan was previously their only option. Now, you may be able to get a larger house using a conforming loan.

Additionally, a big benefit is the down payment requirements needed to stay within the conforming loan limit. Potential homeowners will be asked to pay a smaller down payment for the property they have been dreaming about.

The home buying process has just become more affordable if you consider using a conforming loan. Contact Casey Moseman, CMPS, to discuss how 2017’s increased mortgage limits can help you during your property purchasing journey.