Conventional Loan Limit Raised to $453,100
After nearly a decade of the conforming loan limit stuck at $417,000, 2018 ushers in another loan limit increase making it two years in a row. In late 2016 Fannie Mae announced a new loan limit for 2017 from $417,000 to $424,100 where it remained for one year. Then, just last November, Fannie Mae ordered another conforming loan limit increase this time to $453,100. Freddie Mac also matched the new limit. This covers most purchase and refinance transactions in most parts of the country as the national average home price is
Conventional conforming loans by far make up the bulk of the mortgage market, covering nearly two-thirds of all loans generated, so this new increase was felt across the country. Conventional loans are those where the lender assumes the risk when approving a mortgage loan. This is in contrast to government-backed loans which carry some degree of protection to the lender approving the loan. Conventional conforming loans are compared to jumbo mortgage loan amounts.
Jumbo loans are considered as any amount above the conforming loan limit. There are few differences between conforming and jumbo loan programs but the primary difference is the interest rates available for each loan type. In general, a jumbo interest rate can be anywhere between 0.25% to 0.50% higher. For this reason, borrowers who approach the jumbo limit look for ways to keep their loan amount at the new $453,100 to take advantage of the lower monthly payment. While 0.25% may not seem like a lot at first glance it certainly does over time.
Today, the maximum conforming loan limits are set by the Federal Housing Finance Agency, or FHFA. When Fannie and Freddie increase the conforming loan limit there really is a method followed. At the beginning of the fourth quarter of each year, the FHFA compares the home values for the third quarter of the previous year and adjusts the new limit by the same percentage. From Q3 2016 to Q3 2017, the home price index increased by 6.8 percent so the 2018 accordingly from $424,100 to $453,100.
There is also another classification that rests beneath the conventional conforming umbrella and concerns conforming loan limits in areas where property values are much higher compared to most parts of the country. These areas are labeled as “high cost” and expand the conforming loan limit to reflect these higher values. A high cost area can still have a conforming loan amount and the lower rates that go along with it. Such high cost loans will have interest rates slightly higher than the national conforming limit but still lower than what is available with a jumbo program. These home values will vary based upon the local median home values but will not exceed 150 percent of the national conforming level. The maximum high cost loan in 2018 is $679,650. As home values continue to appreciate over the course of this year we can then expect another conforming loan limit increase for 2019.