by Todd Galde, Sr. Mortgage Advisor
For the first time in over 10 years the Conforming and High Balance Conforming loan limits will be increasing in 2017. This is great news for all potential borrowers and especially for new first time home buyers with less than 20% to put down on a purchase.
The Federal Housing Finance Agency (FHFA) recently announced that it would be increasing the maximum baseline conforming loan limit for mortgages purchased by Fannie Mae and Freddie Mac from $417,000 to $424,100.
|The FHFA also raised the ceiling loan limit within high cost counties like those in the Bay Area, increasing the “high balance” conforming limit from $625,500 to $636,150.
“The rise was not unexpected,” said David Stevens, Mortgage Bankers Association CEO, in a recent interview. “It reflects the reality that we are in an improving housing market driven by an improving economy.”
$10,000 Increase Does Not Seem Like a Lot, but…
While an increase from $417k to 424k and $625k to 636k may not seem like much on the surface, these increases amount to more volume and more opportunity than one may think.
In a recent report from Black Knight Financial Services, released in early November, it was calculated that increasing the conforming loan limit by $10,000 could result in approximately 40,000 additional originations totaling nearly $20 billion in loan balances.
The report also noted that 17 times as many originations occur at the conforming limit as compared with preceding slices based on dollar amount. Immediately above the limit, whether it be conforming or “high balance”, the originations drop by 70%, Black Knight reported.
Realtors and the Real Estate Community Welcome the Increase in Loan Limits
The announcement by the FHFA has been welcomed by Real Estate agents and buyers alike, offering more buying power for consumers looking to purchase, especially for those with less than 20% down.
California Association of Realtors’ president Geoff McIntosh says that the raised limits will benefit thousands of Californians who have been looking in the upper limits of the ranges.
“The FHFA recognizes that home prices have recovered…. Many higher-priced areas of the state will benefit greatly from the higher limits.”
The increase in conforming loan limits is a long time coming, according to William Brown, president of the National Association of Realtors.
“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…” Brown said. “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 Does the Increase Help Buyers?
For those looking to purchase in the $650,000 range, it is a little-known fact that FHFA allows as little as 5% down payment when utilizing Fannie Mae and Freddie Mac securitized financing. Most consumers think you need 15-20% down, or at least 10% down to purchase in this range but the reality is that “High Balance” Conforming loan amounts will allow for as little as 5% down.
Prior to the new increase by FHFA, a down payment of only $32,921 would allow a buyer to purchase a home selling for up to $658,421, with the loan amount being capped at $625,500.
With the new increase in 2017, a 5% down payment of $33,481 now allows a new buyer to purchase a home selling for $669,631, an increase in buying power of $11,210 for only an additional $560 down!
While home prices may be larger, consumers’ purchasing power has also grown. As a result, while the outright cost to buying a home is greater, in a relative sense it is actually cheaper than in the past.
“It matters a lot less to the consumer what the price level of the home is [as compared with] how much it costs per month to be able to buy,” notes First American Financial Services Chief Economist Mark Fleming. “When you account for income growth, which has been substantial in recent quarters, and still record-low interest rates, purchasing power is the highest it’s been.”
Todd Galde, Sr. Mortgage Advisor
Commerce Home Mortgage