HIGHER CONFORMING LOAN LIMITS ANNOUNCED EVERY YEAR
Every year, usually in late November, the Federal Housing Finance Agency (FHFA) announces the new conforming loan limits for every geographic area for the following calendar year.
Shortly thereafter most every mortgage lender follows suit and starts to offer higher conforming loan amounts as well.
Two quick reminders: (1) The FHFA is the agency that regulates Fannie Mae and Freddie Mac; and (2) Conforming loans “conform” to the more lax (relative to jumbo) underwriting guidelines offered by Fannie Mae and Freddie Mac.
Lenders usually did not offer higher conforming loan limits prior to the FHFA’s announcement because they ran the risk of having unsalable loans, as few investors would buy a conforming loan that exceeded the loan limits (because it would not be “backed” by Fannie or Freddie). As another reminder, mortgage lenders only make money when they sell loans – and an unsalable loan can result in losses as high as six figures.
THIS YEAR IS DIFFERENT BECAUSE THE MORTGAGE MARKET IS SO MUCH MORE COMPETITIVE!
This year is very different because multiple lenders are jumping the gun, so to speak, by offering “Low-Balance” conforming loans up to $647,200 already (up from $548,250).
Lenders are offering higher loan limits for two reasons: (1) because they have done their own analyses and believe with some certainty that the FHFA will increase the loan limit to $625,000 in any case; and (2) the market is far more competitive today than it has been in years past, so when one lender takes this risk – many others follow suit because they have to in order to remain competitive.
JVM Lending is of course one of those lenders.
“LOW-BALANCE” VS “HIGH-BALANCE”
This loan limit increase only applies to low-balance conforming loans – and not to high-balance conforming loans.
High-balance loans are available in “high-cost areas” and were greatly expanded after the 2008 mortgage meltdown.
High-balance loans have higher rates than low-balance loans for several reasons, including a cap on the percentage of high-balance loans lenders are allowed to fund and sell.
BIG DEAL FOR TEXAS
This is a much bigger deal for our Texas clients, as the entire state is subject to low-balance conforming loan limits (there are no designated “high-cost areas”).
In contrast, most of coastal California is “high-cost” and not nearly as many of our California clients obtain low-balance conforming loans (simply because the cost of housing is much greater).
WHY THE INCREASE MATTERS
The increase in the limit matters because every borrower with a loan amount between $647,200 and $970,800 is now eligible for low-balance financing – that often comes with either much lower rates or more flexible underwriting guidelines.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
