Are you thinking about buying a house in 2019? Or are you considering refinancing your mortgage, either to save money or take some equity out of your home?
Well here’s some good news. Effective Jan 1 2019, the Federal Housing Finance Agency announced new loan limits for almost every part of the country for both conventional and FHA loans.
What do new loan limits mean?
These loan limits dictate what lenders can sell to Fannie Mae and Freddie Mac, the largest purchasers of mortgages in the conforming secondary market. “Conforming” simply means loans that conform to Fannie and Freddie’s guidelines. Fannie Mae and Freddie Mac basically tell lenders what they will purchase, and most lenders want to adhere to their guidelines so they can sell the loans they make. That’s how lenders are able to replenish their pool of money to lend instead of having to hold a loan on their books, which limits their lending capacity.
How do new loan limits help you?
Let’s take an example. In 2018, the conforming loan limit for a single family home was $453,100. In 2019, that limit is now $484,350.
Let’s say you’re buying a house for $600,000. You’re putting down 20% which means you plan to borrow 80% or $480,000. In 2018, your loan would have been over the conforming loan limit of $453,100. Unless you’re buying in a specific county identified as a high cost area as shown on this interactive map, your $480,000 loan amount would be considered a “jumbo” loan. Now, it’s not. It’s considered a conforming loan. And that’s a good thing. Why?
5 Advantages of Conforming Loans
- Lower rates
- More lenient debt-to-income ratios
- Lower down payment required
- Gift funds are an acceptable source of funds
- Lower acceptable credit scores
Rates on a conforming loan are typically 1/8% to 1/4% cheaper than rates on jumbo loans. That could save you tens of thousands of dollars over the life of your loan.
Higher Debt-to-Income Ratios
Underwriting standards are generally more lenient on conforming loans. Debt-to-income ratios can usually go up to 50% on a conforming loan, whereas with a jumbo loan, the maximum ratio is usually 43%.
Lower Down Payment
With certain conforming loan programs, the minimum down payment is just 3%. Most jumbo loans require 10% down or more.
Gift Funds Are Allowed
With a conforming loan, you can get a gift for your entire downpayment. With a jumbo loan, you typically need to show 5% of the purchase price is coming from your own funds.
Lower Minimum Credit Score
Credit standards are usually lower on a conforming loan. A score of 620 or higher is all that’s needed for a conforming loan, but jumbo loans often require a score of 700 or more.
New Loan Limits Help You Qualify
The new loan limits let you borrow more money at the lower conforming rates. It’s like a sale on mortgages. So it not only got cheaper to get a loan, it got easier!
And that’s good news.
(c) Copyright Eris Saari 2018-2019