That's good news as it's easier to qualify for a conforming loan than a jumbo loan. Also, jumbo loans due to higher loan amount comes with a higher price tag on the interest rate. If baseline jumbo thresholds rise more it should encourage more to buy and move into higher priced homes.
Mortgage Limits May Increase
With home prices still climbing, baseline jumbo-mortgage thresholds may be raised for the first time in a decade.
By Anya Martin
-July 15, 2015 10:22 a.m. ET
Jumbo mortgages for single-family residences exceed $417,000 in most
parts of the country and $625,500 in high-price markets. But with home prices climbing back to prerecession peaks in some markets, baseline jumbo thresholds may be raised for the first time in a decade.
The agency that sets these limits, the Federal Housing Finance Agency
(FHFA), in May requested public input on its house price index. This
index includes sale-price information on government-backed mortgages as
well as real-estate sales compiled by research firm CoreLogic from
hundreds of U.S. counties. Distressed sales are included but not
appraisal values from refinances.
The deadline for input is July 27, and the FHFA will decide this fall whether to change the baseline limit starting Jan. 1.
In the early 1970s, the baseline limit for conventional loans was just $33,000. That was the maximum amount a homeowner could borrow to qualify for a “conforming” mortgage—one financed by Fannie Mae or Freddie Mac. The $33,000 limit rose steadily over the years to keep up with home prices. Hawaii, Alaska, Guam and the Virgin Islands got higher loan limits because of the high cost of living.
The Housing and Economic Recovery Act of 2008 established the current formula, which is based on median home-sale prices reported in a monthly FHFA survey. However, there is some wiggle room in high-cost areas, where conforming loans can exceed the baseline by up to 150%.
To keep up with rapidly rising home prices, FHFA in January raised its conforming-loan cap in 46 counties nationwide—the largest number since 2012. Areas affected include metro Baltimore, Boston, Denver, Nashville and Seattle.
Loan-limit increases encourage more high-end home sales because many people, especially those upgrading for the first time to a pricier home, are more comfortable with a conforming loan, says Allen Decuyper, an agent with Nashville-based Neal Clayton Realtors. “For some it’s a psychological hurdle to get over—just the word ‘jumbo’—so [raising the limit] helps,” he adds.
Typically, it’s also easier to qualify for a conforming loan than a jumbo loan. Mortgages backed by Fannie Mae and Freddie Mac usually have lower interest rates, with the current difference about a quarter to a half a percentage point below jumbo rates, says Norman Koenigsberg, president and CEO of East Brunswick, N.J.-based First Choice Loan Service. Conforming mortgages also have less stringent underwriting qualifications than jumbo loans, says Mathew Carson, a mortgage broker with San Francisco-based First Capital Group.
For example, to qualify for the best rates, jumbo borrowers need a credit score of 740 or higher, while a Fannie Mae-backed mortgage borrower may only need 680, Mr. Koenigsberg says. Additionally Fannie Mae and Freddie Mac mortgages allow down payments as low as 3% and require zero to three months’ worth of cash reserves, as opposed to typically a 20% down payment and six months’ reserves to a year for a jumbo loan, Mr. Carson says.
More tips on qualifying for a conforming loan:
Put more down. If a borrower has sufficient assets, the easiest way to qualify for a conforming loan is to make a larger down payment or limit the amount of a refinance.
Double up. Many borrowers take out a home-equity loan or line of credit to fill the down payment gap. However, because second mortgages typically are adjustable-rate mortgages, consumers should not borrow more than they can pay off within the time period when low rates are locked in, Mr. Carson says.
Compare rates. During some weeks in 2014, average rates for both 30-year, fixed-rate loans and adjustable-rate jumbo mortgages dipped lower than conforming-loan rates. Even when average rates are higher, some lenders are competitive with their jumbo products when wooing borrowers with high credit scores, Mr. Koenigsberg.
Source: http://www.wsj.com/articles/mortgage-limits-may-increase-1436970136
In the early 1970s, the baseline limit for conventional loans was just $33,000. That was the maximum amount a homeowner could borrow to qualify for a “conforming” mortgage—one financed by Fannie Mae or Freddie Mac. The $33,000 limit rose steadily over the years to keep up with home prices. Hawaii, Alaska, Guam and the Virgin Islands got higher loan limits because of the high cost of living.
The Housing and Economic Recovery Act of 2008 established the current formula, which is based on median home-sale prices reported in a monthly FHFA survey. However, there is some wiggle room in high-cost areas, where conforming loans can exceed the baseline by up to 150%.
To keep up with rapidly rising home prices, FHFA in January raised its conforming-loan cap in 46 counties nationwide—the largest number since 2012. Areas affected include metro Baltimore, Boston, Denver, Nashville and Seattle.
Loan-limit increases encourage more high-end home sales because many people, especially those upgrading for the first time to a pricier home, are more comfortable with a conforming loan, says Allen Decuyper, an agent with Nashville-based Neal Clayton Realtors. “For some it’s a psychological hurdle to get over—just the word ‘jumbo’—so [raising the limit] helps,” he adds.
Typically, it’s also easier to qualify for a conforming loan than a jumbo loan. Mortgages backed by Fannie Mae and Freddie Mac usually have lower interest rates, with the current difference about a quarter to a half a percentage point below jumbo rates, says Norman Koenigsberg, president and CEO of East Brunswick, N.J.-based First Choice Loan Service. Conforming mortgages also have less stringent underwriting qualifications than jumbo loans, says Mathew Carson, a mortgage broker with San Francisco-based First Capital Group.
For example, to qualify for the best rates, jumbo borrowers need a credit score of 740 or higher, while a Fannie Mae-backed mortgage borrower may only need 680, Mr. Koenigsberg says. Additionally Fannie Mae and Freddie Mac mortgages allow down payments as low as 3% and require zero to three months’ worth of cash reserves, as opposed to typically a 20% down payment and six months’ reserves to a year for a jumbo loan, Mr. Carson says.
More tips on qualifying for a conforming loan:
Put more down. If a borrower has sufficient assets, the easiest way to qualify for a conforming loan is to make a larger down payment or limit the amount of a refinance.
Double up. Many borrowers take out a home-equity loan or line of credit to fill the down payment gap. However, because second mortgages typically are adjustable-rate mortgages, consumers should not borrow more than they can pay off within the time period when low rates are locked in, Mr. Carson says.
Compare rates. During some weeks in 2014, average rates for both 30-year, fixed-rate loans and adjustable-rate jumbo mortgages dipped lower than conforming-loan rates. Even when average rates are higher, some lenders are competitive with their jumbo products when wooing borrowers with high credit scores, Mr. Koenigsberg.
| CITY | Conforming loan limit | % of loans that were jumbos (2012) | % of loans that were jumbos (2015) | Change | ||
|---|---|---|---|---|---|---|
| Washington, D.C. | $625,500 | 7.0% | 10.2% | 46.3% | ||
| Tampa, Fla. | $417,000 | 2.0% | 3.5% | 77.7% | ||
| St. Louis | $417,000 | 1.8% | 2.5% | 39.6% | ||
| Seattle | $517,500 | 5.7% | 11.3% | 97.2% | ||
| San Francisco | $625,500 | 17.6% | 38.2% | 116.6% | ||
| San Diego | $562,350 | 11.4% | 19.9% | 74.9% | ||
| San Antonio | $417,000 | 1.8% | 2.5% | 37.3% | ||
| Sacramento, Calif. | $474,950 | 3.1% | 7.6% | 149.3% | ||
| Riverside, Calif. | $417,000 | 3.1% | 7.8% | 151.3% | ||
| Portland, Ore. | $417,000 | 4.2% | 8.0% | 89.0% |
| Pittsburgh | $417,000 | 1.1% | 1.6% | 46.4% | ||
| Phoenix | $417,000 | 4.0% | 6.3% | 58.5% | ||
| Philadelphia | $417,000 | 4.7% | 6.0% | 27.3% | ||
| New York | $625,500 | 7.1% | 9.7% | 36.6% | ||
| Minneapolis-St. Paul | $417,000 | 3.1% | 5.3% | 68.3% | ||
| Miami-Fort Lauderdale | $417,000 | 7.1% | 10.9% | 53.2% | ||
| Los Angeles | $625,500 | 11.9% | 21.3% | 78.5% | ||
| Houston | $417,000 | 3.0% | 5.4% | 82.0% | ||
| Detroit | $417,000 | 0.9% | 1.9% | 108.1% | ||
| Denver | $424,350 | 6.2% | 11.2% | 82.3% |
| Dallas-Fort Worth | $417,000 | 2.5% | 4.0% | 62.1% |
| Chicago | $417,000 | 4.5% | 6.4% | 42.2% |
| Boston | $517,500 | 11.8% | 14.1% | 19.9% |
| Baltimore | $517,500 | 3.8% | 4.5% | 16.5% |
| Atlanta | $417,000 | 2.8% | 4.7% | 68.5% |
Source: http://www.wsj.com/articles/mortgage-limits-may-increase-1436970136
