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 does that mean for you?
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.
But how does this 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.
What does that mean?
Jumbo loans typically have higher rates – anywhere from 1/8% to 1/4% higher or more. On your hypothetical $480,000 mortgage, that adds up to $36,000 over 30 years!
The new loan limits let you borrow more money at the lower conforming rates. It’s like a sale on mortgages.
This works for refinances too. Let’s say you owe $453,000 on your loan and want to refinance. You don’t have much in the way of savings right now to cover closing costs, so you want to add them into your mortgage. In 2018, if you increased your loan amount to cover closing costs, you would be bumped into the jumbo category. But now, you can include your closing costs into your new loan so you don’t come out of pocket.
There’s another important reason this is good news for borrowers: underwriting for conforming loans is often more lenient than underwriting standards for jumbo loans. Lenient how?
Jumbo loans often require a higher credit score (700 or higher); a larger down payment (10% or more compared to as little as 3% down for a conforming loan). And jumbo loans often require strict adherence to the 43% total DTI ratios.
So it not only got cheaper to get a loan, it got easier!
And that’s good news.