The last bump was 10 years ago
For the first time in a decade, the Federal Housing Finance Agency (FHFA) announced a bump in the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac, starting in 2017.
Barring higher-cost areas, the max loan limit for one-unit properties will be $424,100, an increase of $7,100.
“Recognition of rising home prices”
NAR President William E. Brown said, “Today’s conforming loan limit increase is a much-needed recognition of rising home prices in high-cost markets, and a help to first-time and lower-income borrowers looking to utilize an FHA mortgage.”
Brown added, “Credit remains tight, but this decision will help more qualified buyers address the hurdles and high costs standing between them and the dream of homeownership.”
How the baseline limit works
The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit of $417,000 and requires this limit to be adjusted every year to reflect increases or decreases in the national average home price. This meant that after home prices fell during the crash, the baseline loan limit would not be touched again until home prices returned to its pre-decline level.
Which didn’t happen until this year.
Prices have gained ground
Today’s FHFA 2016 House Price Index report indicates that average home prices are now above their Q3 2007 level. Meanwhile, NAR continues to ring the alarm of affordability as home prices continue to swing up while lending conditions remain tight. That said, increasing the loan limits will gently massage lending conditions in a healthy manner.
What of high-cost areas?
The FHFA said in a statement that in areas where 115 percent of the local median home value exceeds the baseline loan limit, the maximum area loan limit will be higher. HERA sets the maximum loan limit as a function of the area median home value, while setting a “ceiling” on that limit of 150 percent of the baseline loan limit.
Home values obviously rose in high-cost areas this year and because the baseline loan limit will rise in 2017, the new ceiling limit will also increase to $636,150 for one-unit properties.
Non-contiguous states have different loan limit calculations, so the baseline loan limit in Alaska, Hawaii, Guam, and the U.S. Virgin Islands will be $636,150 for one-unit properties, but the FHFA notes that “actual loan limits may be higher in some specific locations.”
What about your area?
To find out the conforming loan limits in your area, click her to access FHFA’s interactive map, and drill down to your county.