It is 2018, and conventional and conforming loan limits have increased. This could be a benefit to people buying homes, as well as those who want to refinance this year. This means that fewer loans will be considered jumbo loans, which makes borrowing money for a home easier for most people.
A jumbo mortgage is simply a bigger mortgage that is too big to be backed by the federal government. Jumbo mortgage loans may also be called non conforming loans. They do not conform to the mortgage loan size limit. Jumbo loan amounts are very important in high costs areas like California, New York, New Jersey, Hawaii and the District of Columbia.
In 2017, Fannie Mae and Freddie Mac mortgage amounts increased for the first time in more than 10 years. This was largely due to increasing home prices. But maximum amounts for these loans only took a year to rise again.
Loan limits for conforming loans were stalled at $417,000 for more than 10 years. In 2017, they did increase to $424,100, but the nation’s housing agencies found that conventional and conforming loan limits failed to keep pace with the desire to buy a bigger home as the decade went on.
Since 2017, homes under $250,000 have gone up only .6% since 2017. But homes worth $500,000 or more have gone up 15%. Home buyers and people looking to refinance can get a larger mortgage now, as much as $453,100 across the country. It can be even higher in more expensive areas on the coasts. This means anything above the $424,100 amount is considered a jumbo mortgage loan.
This is a relief for many people. Jumbo mortgage-rates are a good deal, but many people cannot afford them. A jumbo mortgage does not conform to Fannie Mae’s and Freddie Mac’s rules. These are loans that go over $453,100 as of January 2018.
Jumbo mortgage loans have a higher interest rate and a bigger down payment is required. But the difference in rate is less than .25% currently. So these are good jumbo-loans for people who have the income and down payment to support them. Rates used to be much higher for jumbo loans, but they have been very similar in the low 4% range like conventional loans for the past year.
The increase in conventional and conforming loan limits are a good thing for most Americans. It means that millions more buyers can get a large mortgage at a low rate and put down as little as 3%.
Jumbo Loan Limit Overview
A loan limit is the top amount the lender will approve for you under certain underwriting guidelines. There is not just one loan limit, there are several. Conventional mortgages have one guideline, FHA loans another, and jumbo loans another. In conforming loans, Fannie Mae and Freddie Mac limit how much you can borrow so the programs are available to those who really need them.
For example, Fannie Mae does not want to have a $5 million loan on their books. That is a high level of risk on one loan. The agency prefers to issue a dozen smaller loans under $500,000 for people who are buying more modest homes.
Loan limits are intended to standardize mortgage loans around the US. This provides the lender and investor with more confidence in the stability of these loans. This reduces mortgage rates for consumers.
As noted above, conforming loan limits are going up in 2018 and may even go up next year. This should make it easier for people to buy nicer and nicer homes. But if you want a loan above $453,100, you will generally need to have the higher credit score and down payment required to get approved.
Conforming Limits for 2019
Lending limits for conventional mortgage products have increased nicely this year. They have risen almost 7% since 2017 for a standard, one unit house. This limit is only for the regular cost areas of the US; in higher cost areas, the limit is higher. For example, in many parts of California, the limit for a one unit home is $679,650. Even higher standards apply in Hawaii where a one unit home can be financed with a conventional loan for over $1 million.
How a Jumbo Mortgage Works
Lenders make a lot of money off jumbo loans, but only 4% of the loans approved in the US are jumbo loans. Within this small number of loans, there are mortgage lenders that will approve loans that they intend to keep on their books. Cheaper loans are often sold off, but jumbo loans are very profitable and the people who have them are generally high income and high credit, so the risk is less in some ways.
Getting approved for a jumbo mortgage is harder than a conventional loan. It will depend somewhat on the lender, as there is no exact standard for these non-conforming loans. Generally, you will need to have a credit score well above 700, and an income well into the six figures.
References: Conforming Mortgage Loan Limits Fannie Mae and Freddie Mac. (n.d.). Retrieved from https://themortgagereports.com/27773/2017-conforming-mortgage-loan-limits-fannie-mae-freddie-mac