Loan limits set to increase in January 2018. Here’s how homebuyers benefit.
Fannie Mae just announced new loan limits for 2018, increasing by $30,000 from 2017. What does this mean for you as a buyer?
Thinking about buying a house in the next year? Based on a recent announcement from Fannie Mae, the outlook is good. In November 2017, Fannie Mae confirmed that it will raise loan limits as of January 1, 2018. The increase is significant: $30,000.
The maximum "conforming loans," those backed by Fannie Mae and Freddie Mac that typically come with lower interest rates than "non-conforming" and "jumbo" loans, will increase limits from $424,100 in 2017 to $453,100 in 2018. That amounts to a new loan limit increase of 6.8 percent.
New loan limits may make it easier to buy
In 2016, Fannie Mae raised conforming loan limits for the first time since 2006 — also the first time since the housing crisis hit. This new increase for 2018 will be the second jump in loan limits, affecting most parts of the U.S. New limits apply to home loans that close on or after January 1, 2018.
Why the increase for the second year in a row? The Federal Housing Finance Agency (FHFA) explains in a recent press release:
Home values are rising, particularly in high-cost areas.
Baseline and ceiling conforming loan limits must increase to accommodate.
An FHFA map of the 2018 maximum loan limits throughout the U.S. can be found here.
In designated "high-cost" areas, loan limits will be set higher. These are housing markets where at least 115 percent of the local median home value exceeds the baseline conforming loan limit. Different loan limits, based on special statutory provisions, may be calculated for Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
Maximum loan limit increases from Fannie Mae and Freddie Mac will also apply to multiunit properties, increasing to $580,150 for two-unit properties, $701,250 for three-unit properties, and $871,450 for four-unit properties.
These changes may mean that up to $30,000 extra is available to the homebuyer who qualifies. Depending on the housing market, and especially where inventory is tight, this can give many buyers a leg up on the competition — and the ability to purchase a larger house in a different area or neighborhood they may not have been able to afford otherwise.
Jumbo loans are often used if a home loan amount is too high to meet conforming loan limits. Depending on individual needs, qualifying for new conforming loan limits can have some advantages over jumbo loans, like:
Lower down payment options that range from 3 to 5 percent.
The opportunity to take out more home equity in a refinance, providing more cash for home renovation, college education, medical emergencies, and more.
Lower credit requirements, in most cases, since lower loan limits incur less risk.
