You may not see a bumper sticker about how conforming loan limit maximums will rise again, but that doesn’t make the news any less exciting.
In a move signaling the strength of the economy as well as confidence about the future stability of the housing market, the Federal Housing Finance Agency (FHFA) recently decided to increase the maximum amount for conforming loans to $453,100. The new amount represents a significant uptick from 2017, when the conforming loan limit maximum for mortgages acquired by Fannie Mae and Freddie Mac was $424,100.
What does this mean for a buyer shopping for a loan in Wilmington? A substantial increase in buying power, as it is now possible to put five percent down on a home with a purchase price of approximately $476,000 and still have access to historically low interest rates. The new conforming limit maximum takes effect next year, but it’s possible to open a loan now and secure these terms, so long as the case number is assigned on or after Jan. 1, 2018.
In previous years, a financing scenario with a closing price of $476,000 and a five percent down payment would have been termed a jumbo loan. Since borrowers do not have as much equity in their home when they purchase it with a jumbo loan as compared to a conforming loan, the interest rates are higher. As an example, most interest rates for jumbo loans start at five percent and go up from there.
The new maximum loan limits allow borrowers with the exact same financial scenario to purchase a home priced at $476,000 and potentially get a loan with an interest rate of four percent or less. A difference of around one percent may not sound like much on the surface, but over time, with a purchase price of almost half a million, the savings can really add up.
Of course, this is just an example, and the numbers can vary according to a borrower’s individual financial situation.
But when you consider that a person dealing with the 2017 rules for mortgages acquired by Fannie Mae and Freddie Mac would only be able to borrow $424,100 if they put down five percent, and realize that their maximum purchase price in that scenario would be around $446,000, it is easy to see why this is such a positive development.
In the scenarios listed above, the borrower now has an approximately $30,000 increase in buying power as a result of the new rules. Definitely something to get excited about!
This should obviously be a cause of celebration for buyers who are shopping for homes in this segment. What may not be as obvious is that this should be encouraging news for homeowners and anyone else connected to the housing industry.
Since the Housing and Economic Recovery Act requires the FHFA to adjust the maximum limit for conforming loans on an annual basis, to reflect increases or decreases in the median price for an average home in the U.S., this is definitely a positive development. The FHFA adjusts the maximum loan limit to reflect the changes reported by its seasonally-adjusted House Price Index (HPI), which estimates the average increase in home prices across the nation over a period of four quarters.
The HPI for the third quarter of 2017 showed a 6.8 percent increase in home prices from the third quarter of 2016, so the maximum limit for conforming loans will be adjusted accordingly. This serves as proof of the appreciation that we have been witnessing as well as a strong point in favor of the strength of the economy and the safety of a home as a long-term investment.
To find out about your options, give me a call at the number below.
Patrick Stoy (NMLS Numbers 39527 and 39166) has 18 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.
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