The largest loan limit for Fannie Mae and Freddie Mac has been increased by the Federal Housing Finance Agency (FHFA). This announcement was made on November 23, 2016. The increase announced will apply to single family homes throughout the country. The maximum loan on such properties was increased from $417,000 to $424,000. However, it remained the same in some areas and is higher in high-cost areas. The loan limit increase will have an effect on apartment deals across the country.
Reason Why FHFA Loan Limits Increased
Loan limits that affect Fannie Mae and Freddie Mac are usually determined by the Housing and Recovery Act of 2008 (HERA). The Act set the loan limit at $407,000. It stipulated that because of the price declines and low home values, the loan limit could not be increased until home costs return to the previous baseline prices. It is supposed to be adjusted yearly. However, for ten years, the rate remained below the baseline that was achieved in the last quarter of 2007. As a result, the loan limit had never been increased.
FHFA third quarter home price index for 2016 indicated that they were above the home prices in the third quarter of 2007. Because the price was above the baseline, an increase in the loan limit was expected. The difference was a 1.7% increase in the results that were posted in 2007. As a consequence of the loan limit, next year will be increased by that percentage.
Conforming To The New Loan Limits
The conforming loan limit is the limit that Fannie Mae and Freddie Mac are allowed by law to purchase one unit mortgages.If a loan is above this threshold, it is referred to as a Jumbo loan. Jumbo loans are often characterized by high down payment repayment, strict rules and high fees on borrowers. The loan limit increase by FHFA is an indicator of rising home markets in high-cost areas. The increase will result in having more qualified buyers as it will help them to address any hurdles.
The maximum area loan limit is higher in areas that the local median home value is greater than the baseline loan by 115%. The current median home values are higher in high-cost areas. The high loan limit next year will result in higher ceiling limit. The new cap limit will be $636,150. This is the price of one unit properties.
There is an exception for high-cost counties. FHFA says that particular statutory provisions are used to set up different loan limit calculations in states like Hawaii, Guam, Alaska and the U.S Virgin Island. The loan limit applied will have an effect on apartment deals in these states. The new restrictions will also affect demand and supply of apartments in the affected states. The baseline limit here is $636,150.
In a statement, the National Realtor President William E Brown said that the increase in loan limits clearly shows the high cost of homes in high-cost areas. He said that this was going to help the low-income borrowers. California Association of Realtor President Geoff McIntosh stated that they applaud FHFA for increasing the conforming loan limit because it will provide stability and certainty to the home market. He also stated that this increase gives an opportunity to many California residents to be homeowners. He observed that higher cost places would benefit the most.
The loan limit increase will not affect 87 counties. It will affect homeowners countrywide. There is going to be increased apartment deals throughout the country. The hurdles standing between them and homeownership have been significantly reduced, and more people will be in a position to pay for their homes. This also shows that there is an increase in high-cost markets.
Most of the countries' residents acquire loan mortgages from Fannie Mae and Freddie Mac. A lot of people are, therefore, going to be affected by the increase in loan limits by FHFA. Observers say that the higher loan limits will result in a higher mortgage volume. A list showing the maximum conformation loan limits has already been published. The ten-year gap between the last review and now will be felt. The hurdles standing between them and homeownership have been significantly reduced, and more people will be in a position to pay for their homes