What the 2018 FHFA Maximum Conforming Loan Limits Mean for You
It was a big news week for the mortgage industry! The Federal Housing Finance Agency (FHFA) recently announced the new 2018 maximum conforming mortgage limits for mortgages eligible for sale to Fannie Mae and Freddie Mac. As your go-to source for mortgage news, we’re explaining everything you need to know about these increased loan limits.
The new conventional loan limit for Michigan will increase from $424,100 to $453,100 in 2018. This increase in loan limits is based on the increase in home prices between the third quarters of 2016 and 2017. These increases, along with other economic factors, signify a rise in economic strength and impact everyone from buyers and sellers to real estate agents.
This huge $29,000 increase (compared to a $7,000 increase in the maximum conforming loan limit last year), indicates the housing sector is recovering following the Great Recession, and homes are starting to gain more value.
In fact, The Detroit Free Press reported that metro Detroit’s home prices are soaring – up 7.2% since last year. When the FHFA raises loan levels, it means the housing market is on the rise and the general economy is growing.
How does this impact homebuyers and sellers?
The increase in the conforming loan limit will make a lower interest rate available on mortgages up to the new (higher) loan limit and increase affordability for borrowers when taking out a conventional loan. As a buyer, you might be able to buy more home for your money, or finally purchase that dream home you thought you wouldn’t be able to afford previously.
As a buyer or seller, this conventional loan limit increase allows you to borrow more at a lower interest rate. A huge benefit of homeownership is having equity in your house that can be used for home improvements and other investments. Whether you’re looking to purchase a fixer upper, refinance your home or do some updating before putting your home on the market, your increased home equity will be available to you at a lower interest rate in 2018.
How does this impact real estate agents?
This good news isn’t just for homebuyers and sellers. Real estate agents have plenty to be excited about with the conventional loan limit increase, as well. Helping your clients both buy and sell homes will be easier with more funds available at a lower interest rate. Your sellers will be able to sell their homes at higher values, and your buyers will be able to buy more house for the dollar.
What about Jumbo Loans?
In addition to the benefits listed above, some borrowers will be able to enjoy a more favorable rate if the loan amount is at or below the new maximum. When you take out a jumbo loan, or non-conforming loan, higher risk is associated with it, which brings higher interest rates. Current homeowners who have jumbo loans that are at or below the new limit may be able to refinance into a lower interest rate loan and reduce their monthly obligation. In other words, if you have a loan that is at or below $453,100, you can refinance that jumbo loan into a standard 30-year fixed-rate conventional loan with a lower rate in 2018.
Impact on FHA Loan Limits and VA Maximum Guaranty
Now that the conventional loan limits have increased, we anticipate FHA and VA loans to increase in accordance with what has happened historically. These loan limits are calculated using equations based off of conforming loan levels. Though they have not been officially announced yet, we have high confidence in projecting the FHA and VA mortgage loan limits for 2018.
The base limit or “floor” for FHA mortgage loans in Michigan should be approximately $294,500 (65% of $453,100 – the conventional conforming limit). Moreover, the VA maximum guaranty amount is expected to increase to about $113,275 (25% of $453,100).
Based on previous experience, we expect the new FHA limits will apply to case numbers assigned on or after January 1, 2018. The new VA and conforming loan limits should apply to loans closed on or after January 1, 2018.
While these numbers have not officially been released by the FHA and the VA, it is expected that these loan amounts will increase with the conforming loan limit.
As your trusted mortgage partner, we are happy to answer any questions you have about these new industry changes. Please feel free to contact us here or give us a call at (800) 521-5362.