For the last decade, conforming loan limits have been limited to $417,000 for single family homes, except for homes located in counties in higher-cost areas.
On November 23, the Federal Housing Finance Agency (FHFA) announced the baseline conforming loan limit for 2017 would be increased — the first limit change since 2006.
Due to home price gains in 2016, the FHFA is also increasing the limits for certain higher-cost areas that are above the baseline.
For conforming loans closed after January 1, 2017, the new nationwide baseline limits are:
- One Unit: $424, 100
- Two Unit: $543,000
- Three Unit: $656,350
- Four Unit: $815,650
The new 2017 loan limit of $424,100 is a $7,100 increase from 2016’s loan limit of $417,000. But keep in mind, this is just a baseline limit used for the majority of the country. Some counties with higher real estate costs can be as high as $636,150, such as New York City and San Francisco. For more information, the FHFA has a helpful heat map with loan limits by county.
What is a conforming loan limit?
First, a conforming loan is a mortgage loan that meets certain Fannie Mae and Freddie Mac guidelines, including debt-to-income ratio, credit score minimum, loan-to-value ratios, and more. Generally, any loan that doesn’t meet these certain guidelines is considered a non-conforming loan.
Of these conforming loan guidelines, the size of the loan, also known as the loan limit, is one of the most common. A loan that exceeds this limit is known as a jumbo loan.
Why does this change matter?
Conforming loans offer many advantages to homeowners, including generally lower interest rates compared to jumbo loan interest rates. Often, they also don’t include pre-payment penalties, which means you could pay off your mortgage sooner without any additional cost to you.
The over $7,000 baseline increase offers several benefits, including buying a bigger house. If you’ve been considering a loan amount above $417,000, a non-conforming jumbo loan may have previously been your only option. Now, you may be able to get a larger house using a conforming loan.
Additionally, you can now decrease your down payment to stay within the conforming loan limit. Let’s suggest you wanted to buy a $500,000 home. Prior to this limit increase, you would need a down payment of $83,000 to buy this home without using a jumbo loan. In 2017, you can instead put down $75,900 and finance $424,100, meaning you’ll need $7,000 less for your down payment.
Another option is decreasing your interest rate. With the ability to finance more of the home, you could use your additional out-of-pocket funds to buy down your interest rate.
That home you’ve been dreaming about may now be within reach using a conforming loan. Contact a mortgage banker to discuss how 2017’s new loan limits can benefit you during your home buying journey.