Home prices are on the rise and the federal government is responding.
In a press release issued on Nov. 28, 2017, the Federal Housing Finance Agency (FHFA) announced that they are increasing the conforming loan limits for 2018 baseline loans supported by Fannie Mae and Freddie Mac to $453,100. In 2017, the baseline maximum was $424,100.
This marks two consecutive years that the FHFA has increased conforming loan limits, which indicates that the housing market is seeing a strong, consistent recovery from the financial crisis of the past decade.
According to data from HSH.com, a mortgage information publisher, baseline loan limits were locked at $417,000 from 2006 to 2016.
Maximum Loan Limits for 2018 Announced by the FHFA
Baseline Limits Increase to $453,100
The Housing and Economic Recovery Act, or “HERA,” requires the adjustment of baseline loan limits every year. Fannie Mae and Freddie Mac, therefore, have to set their standards to reflect the change in average home prices across the U.S. The FHFA has now released their House Price Index report for the third quarter of 2017. This report includes estimates for the increase in average U.S. home prices over the past year.
Their data, which was seasonally-adjusted, shows that home prices rose 6.8% over the past year. Because of this increase, the maximum conforming loan limit will also increase by 6.8%. This is how the FHFA calculated the rise from $424,100 to $453,100.
$453,100 is, however, simply the maximum for most of the United States. Because average home prices vary from area to area, the FHFA adjusts their numbers based on counties, allowing for loans that reflect regional home values.
High-Cost Area Maximum Limits Increase to $679,650
The FHFA also looks at areas where home values are significantly higher, dubbing these regions “high-cost areas.” The limits were also adjusted for high-cost areas, allowing for higher lending limits in places where homes are more expensive. If an area has a significant portion of the local median home value that exceeds the baseline conforming limit, it will be considered a high-cost area and will have greater loan opportunities.
HERA establishes a top loan limit in high-cost areas by looking at the median home value and setting a ceiling on that limit, which is 150% of the baseline loan limit. Median home values increased steadily from the end of 2016 to the end of 2017, increasing the maximum loan limits in most high cost areas. The new limit for most high-cost areas is $679,650, which is 150% of $453,100.
Other Information in the Press Release
The press release from the FHFA also addressed a few other points related to mortgage lending across the country. It discussed the special provisions that are established for areas not in the contiguous United States, which include Alaska, Hawaii, Guam, and the U.S. Virgin Islands. These areas receive special statutory loan limits of $679,650, although the limits can actually be higher in certain areas.
The article also stated that maximum conforming loan limits will be higher in all area of the United States except for 71 counties or “county equivalents.”
Maximum Loan Limits for San Diego County and Notable Areas
The 2018 FHFA loan limit for San Diego County, California is $649,750 for a one-unit home. If you are interested in a two-unit home, the maximum us $831,800, while three-unit homes are set at just over $1 million. For four-unit homes, the maximum loan limit for 2018 is roughly $1.25 million.
Other counties of interest include Orange County, California, which has a conforming maximum of $679,650 for a single-family home and a four-unit limit over $1.3 million. In Imperial County, the single-unit limit is $453,100, while the four-unit limit is $871,450. Riverside County has the exact same numbers as Imperial, as do many other California counties.
To see the 2018 loan limits for your county or area, view the full list from the FHFA. The list is organized alphabetically by state or territory (Alabama first, Virgin Islands last) with counties then listed alphabetically for each state or territory.
Why Do Loan Limits Matter?
It’s important to remember that these are not the maximum limits for all mortgages in 2018. They are simply the maximum numbers for loans that will be within the parameters of Fannie Mae and Freddie Mac. Lender can write a loan above and beyond these limits, creating what is called a “jumbo loan,” but staying within the limits brings added protection and security to lenders.
Most lenders are more willing to write loans that conform to the standards of FHFA. They want the security that comes with loans inside the limits, so it’s usually easier for borrowers to qualify. If you go above the limits, lenders loose certain protections, so credit score requirements may be higher and interest rates can be larger.
The federal government provides various insurances and backing for loans that remain below the maximum limit, so lenders have a major incentive to stay within the 2018 loan limits. There are, however, opportunities to secure loans that are above the FHFA numbers.
About the FHFA
The Federal Housing Finance Agency, or FHFA, was established in 2008 through the Housing and Economy Recovery Act of 2008. FHFA is responsible for supervising and regulating Fannie Mae and Freddie Mac.
It is an independent federal agency that essentially regulates Fannie Mae and Freddie Mac, which are government-sponsored entities. FHFA also regulates the 11 Federal Home Loan Banks. The FHFA is completely separate from the Federal Housing Administration (FHA).
The Right Support for Both Conforming and Non-Conforming Loans
If you want more information on the conforming limits for 2018, or if you simply want to explore your mortgage options, contact the helpful staff at San Diego Purchase Loans.
We’ll help you navigate the complexities of the mortgage industry so you can make the right choice for your future!
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