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By G. Steven Bray
Congress tasked the Federal Housing Finance Agency (FHFA) each year to reset conforming loan limits based on the change in the average U.S. home price for that year. FHFA reported that home prices rose 5.38% last year, so accordingly, it increased the loan limit by the same amount to $510,400 for a single-family home.
A conforming loan is one eligible for purchase by Fannie Mae and Freddie Mac, the two government behemoths that control most of the home loan market. Except for government loan programs, Fannie and Freddie programs offer the best combination of low interest rates and low down payment requirements. For both the minimum down payment is 3%; thus, it’s now possible to purchase a half million dollar home with a $15,000 down payment.
Higher loan limits apply in certain “high cost” areas where 115% of the local median home price exceeds the new limit; however, FHFA hasn’t identified any of those “high cost” areas in TX. Higher limits also apply to two, three, and four unit properties.
Tracking the rising loan limit over the last few years gives a good sense of how quickly home prices have been rising. In 2017 the single-family loan limit first rose from its Congressionally-mandated value of $417,000. In three years, the limit has risen 22%.
The new limits are effective for loans that close starting Jan 1st, which means they will apply for homebuyers who are shopping for a new home now (assuming a normal 30-day closing).
FHA sets its loan limit independently of Fannie and Freddie, and I’ll report on it next week.