For the first time in a decade, the Federal Housing Finance Agency (FHFA) has announced an increased borrowing limit for conforming loans. As a reminder, a conforming loan meets the guidelines for a mortgage to be acquired by Fannie Mae (FNMA) and Freddie Mac.
In 2017 the borrowing limit for single-family homes will be raised from $417,000 to $424,100 in most locations, with a jump to $636,150 in higher-cost areas.
Let’s explore the background and market factors that led to the increased borrowing limit:
- The Housing and Economic Recovery Act of 2008 was designed to address the subprime mortgage crisis.
- One tenet of that act was to establish a baseline loan limit of $417,000 for most of the United States, with higher levels in high-cost areas.
- Locations where 115% of the local median home value exceeds the baseline load limit are considered to be “high-cost” areas.
- The baseline limit could not increase until home prices return to pre-decline levels. The third quarter of 2007 was identified as the pre-decline point of reference.
- The FHFA’s Home Price Index (HPI) for the third quarter of 2016 makes it “clear” that average home prices are above the pre-decline period in the third quarter of 2007.
Therefore, the FHFA is now able to increase the borrowing limits by 1.7% due to comparable increases in third quarter HPI value in the third quarter of 2016.
The bottom line…
In 2017, your qualified clients can secure a mortgage that’s approximately 1.7% higher than they could have during the last 10 years.
Typically, these borrowers would need to have a DTI of about 43% in order to qualify. If they don’t qualify for a conforming loan, then a conventional mortgage or other program may be a better fit. And for those clients looking at significantly larger loans, a jumbo loan may be the best option. Fortunately, Stearns has a full array of mortgage products to meet the needs of today’s homebuyers.
Federal Housing Finance Agency
The Department of Housing & Urban Development
Top Broker Channels. Rep. no. 6M2016. Inside Mortgage Finance, June. 2016. Web. 15 Sept. 2016.
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