The Federal Housing Finance Agency (FHFA) recently announced an increase in their limits for loans purchased by Fannie Mae and Freddie Mac. This increase will make more homes available to homebuyers, and could be the key to helping you purchase the wonderful home you have always wanted.
- In San Diego County, the conforming loan limit has increased from a maximum of $453,100 to $484,350, an increase of over $31,000 in allowable lending.
- For conforming high-balance loans, the increase has gone from $649,750 to $690,000, an increase of over $40,000!
There was a ten-year period when the FHFA did not increase the lending limits for conforming loans. However, there have now been three consecutive years that the agency has increased limits.
New Loan Limits for 2019 Are Available Now
In 2016, the FHFA increased the loan limits from $417,000 to $424,100, then increased them again in 2017 from $424,100 to $453,100, which was the limit used this year. The FHFA is increasing limits again, as home prices have continued to rise and people are purchasing ever-more-expensive homes.
Investors are honoring these new loan limits now, so potential homebuyers need to look at their finances and see if they should consider entering the market. With the new limits, many homes that were previously unavailable could be up for purchase with a loan supported by Fannie Mae or Freddie Mac.
Baseline Limits Across the Country
These changes are guided largely by the Housing and Economic Recovery Act, which was passed in 2008 as a response to the financial crisis. The act addressed flaws in the subprime lending market, which was seen as a large contributor to the economic issues. One of the requirements in the act was that baseline conforming loan limits needed to be adjusted every year to reflect the average house price in the U.S. market. If home prices stayed the same, however, no change would be needed. According to the FHFA’s third-quarter House Price Index, housing prices have increased 6.9% between the third quarters of 2017 and 2018. Because of this, the baseline maximum conforming loan limit has been increased by the same percentage.
Limits in High-Cost Areas
High-cost areas are locations where the 115% of the median home value exceeds the baseline for the conforming limit. If a location meets this requirement, the maximum loan limit can be higher than the baseline limit. The Housing and Economic Recovery Act establishes the top loan amount in those areas, which is defined as a multiple of the area median home value. The ceiling for the limit is 150% of the baseline loan limit.
In high-cost areas, median home values increased, which drove up the maximum loan limits in areas all across the country. The new ceiling for conforming loans across the country is $726,525. In other words, no matter how expensive the median home is in a certain area, loans cannot exceed $726,525.
There are also special provisions for Alaska, Hawaii, Guam, and the Virgin Islands. The baseline loan limit for these areas is $726,525, even though the median home value in a these areas may not reflect this higher amount.
Why Does the FHFA Set Loan Limits?
The Housing and Economic Recovery Act did many things, including the establishment of the FHFA. This institution is an independent federal agency that is primarily responsible for the oversight of Fannie Mae and Freddie Mac, as well as 11 Federal Home Loan Banks.
The primary mission of the FHFA is to ensure that government-sponsored entities operate in a safe and responsible manner, and that they remain a reliable and trustworthy source of funding for housing all across the country. Part of that responsibility is to set limits for the size of loans that Fannie Mae and Freddie Mac can purchase on the open market.
Loan limits are important because they help ensure that Fannie Mae and Freddie Mac do not take on too much risk. By limiting the amount that these two institutions can purchase on an individual loan, they help increase the sustainability and stability of the housing market. However, loans still need to be available in a way that reflects the current market. For this reason, the FHFA has to examine housing prices every year and determine if an increase would be appropriate.
If they did not increase limits, you would have loans options that don’t accurately represent the current housing market or the needs of homebuyers.
Why Are Loan Limits Being Increased?
As we noted earlier, FHFA is mandated by Congress to increase loan limits every year if the housing prices go up, and they are to do so in the exact percentage that reflects the increase. (If housing prices go up 6%, loan limits need to be increased by 6%.) So as you can assume, the loan limits are being increased as a direct response to an increase in home prices, which is happening for many reasons, but largely because of a strong and growing economy.
Of course, there is also the simple fact of inflation, but this reduction in the value of a single dollar doesn’t account entirely for the increase, it only adds to it.
Housing prices are affected by many factors, but in general you will find that as the economy improves, housing prices go up. The connections between the economy and housing prices are many, but much of it has to do with the fact that when the economy improves, people generally have more money to spend. With more income, they can agree to purchase a home at a higher price or shop for homes that are higher on the market. There are also more people buying, which increases demand and leads to higher prices for homes.
Get a Great Loan with 2019 Conforming Loan Limits from the FHFA
If you are interested in taking advantage of the new loan limits, contact San Diego Purchase Loans today. We’ll show you all the options for your next home mortgage, allowing you to make the right decision on a conforming loan, high-balance loan, or even a jumbo loan.
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