The Federal Housing Finance Agency has announced that it will be raising the upper limit for conforming loans beginning in 2017. Starting next year, the limit on loans that qualify as conforming will rise to $424,100. The current limit is $417,000 in most areas of the country. This is the first increase in the baseline loan limit since 2006.
In high-cost areas where median home prices exceed the baseline loan limit, the maximum loan limit will be higher. In more expensive markets, like New York and San Francisco, conforming mortgage limits are rising to $636,150, or 150 percent of $424,100, for one-unit properties. The FHFA can also set loan limits for individual counties in between the lower and upper thresholds. For example, the limit for Suffolk County, Massachusetts will rise to $598,000 from $523,250.
A conforming loan meets certain criteria that allow Fannie Mae and Freddie Mac to purchase the mortgage and combine it with others in a package to be sold to investors. Fannie Mae and Freddie Mac help make inexpensive 30-year mortgages widely available in the U.S. Roughly 71 percent of new mortgages are backed by the government, according to trade publication Inside Mortgage Finance.
The increases in the loan limits could make it easier and cheaper for some first-time homebuyers to enter the market. Conforming loans are often issued with lower interest rates than ones that aren’t. The down payment and credit requirements for government-backed mortgages are often looser than those of non-conforming loans. Many first-time buyers are shut out of the market because the houses they want to buy are too expensive to qualify for government-backed mortgages. Many potential homebuyers also have trouble coming up with more than 3 percent for a down payment.
The increases are due to rising home prices. According to the National Association of Realtors, U.S. median home prices reached a record high of $247,600 in June, 7.9 percent higher than in June 2006. FHFA said its home-price index showed values rising 6.1 percent in the third quarter from a year earlier. FHFA’s seasonally adjusted monthly index on home prices rose 0.6 percent in September.
According to the FHFA’s home price index, home prices started declining in 2007. Prices fell to at $154,600 in 2011 after the mortgage-market crash. According to the law that created the original baseline loan limit, the Housing and Economic Recovery Act of 2008, the ceiling couldn’t be raised until the average price of U.S. homes reached a level equal to the third quarter of 2007. New numbers from the FHFA’s price index show average home prices are now 1.7 percent higher than the third quarter of 2007.