The housing market has continued to recover, leading to increasingly higher property values. The rise is high enough that both the Federal Housing Finance Agency (FHFA) and Department of Housing and Urban Development (HUD) have increased conforming mortgage limits for the first time since 2006. Conforming loans are mortgages that comply with standardized guidelines set by Fannie Mae, Freddie Mac, the FHA and the VA.
Why a Conforming Loan Might Make More Sense than a Jumbo Mortgage
Before we get into specifics, let’s discuss why this change matters. After all, if you’re looking at houses, you can get a jumbo loan if the loan amount is too high for a conforming loan.
There are certain advantages that conforming loans have over jumbo mortgages:
- Conforming loans offer low down payment options in the range of 3% – 5%
- You can take more equity out in a refinance, which translates to more cash for things like home improvements
- Credit requirements are generally easier for conforming loans because lower loan amounts mean less risk
New Conventional and VA Loan Limits
The FHFA sets the loan limits for conventional loans bought by Fannie Mae and Freddie Mac. VA loans also follow these guidelines.
Limits for conventional and VA loans increased from $417,000 to $424,100 for a one-unit property. This limit applies in the 48 contiguous states.
In Alaska and Hawaii, the minimum loan limit is 150% of the national loan limit, which is $636,150. This helps account for higher construction costs in these states. This is the base loan limit, and it may be higher in some areas.
There are high-cost counties in which the limit is higher. However, in the 48 contiguous states, the loan limit on a conforming loan will never be more than $636,150.
Loan limits for multiunit properties have gone up as well:
- Two-unit: $543,000
- Three-unit: $656,350
- Four-unit: $815,650
If you need a loan for more than your local limit, you’ll need a jumbo mortgage.
New FHA Loan Limits
If you’re applying for an FHA loan, the loan limits work a little differently. FHA limits are based on the county you live in.
The FHA has a minimum loan limit of $275,665. This loan limit applies in areas with the lowest property values.
If average property values in your area are higher than the minimum, the best way to find the loan limit in your area is to use this search engine from HUD. The search engine shows local FHA limits as well as local loan limits for Fannie Mae and Freddie Mac loans.
Just like with conventional loans, FHA loan limits are higher for multiunit properties.
When Do the Changes Take Effect?
If you have a conventional loan from Fannie Mae, Freddie Mac or a VA loan, you can apply under the new limits starting today. If you’re looking to get an FHA loan, you’ll have to apply after January 1, 2017, to take advantage of the new limits.
Are you ready to buy a home or refinance? Apply today through Rocket Mortgage or reach out to one of our Home Loan Experts at (888) 728-4702.
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