On November 25, 2015, the Federal Housing Finance Agency announced the 2016 new loan limits. Most notably, four counties in California have increased as well as various others throughout the country. Here’s what you need to know regarding the changes…
Know Your Loan Category
When you apply for a mortgage to buy a home or refinance one you already own, your loan size falls into one of three categories; Conforming, Conforming High or Jumbo. Your loan type is completely separate and independent of mortgage loan program. The amount of money you plan to borrow establishes the framework of how your loan will be structured.
Conforming Loans
These include all loan amounts up to $417,000 in the broader United States. Any loan up to this is considered to Conforming, put simply, a loan that is bought by Fannie Mae and Freddie Mac, securitized and sold in the secondary market as a mortgage-backed security. Loans up to $417k have the most flexible and lenient equity requirements when looking strictly at a Conventional Mortgage that is a mortgage that is not insured by the FHA for example.
Conforming High Balance Loans (Super Conforming Loans)
These are loans greater than $417k but, no larger than the max county loan limit where the subject property is located. Conforming High Balance limits are where the recent changes took place. For example in Sonoma County, California the maximum county high cost loan limit is $520,950 through the end of 2015. In 2016, the new County of Sonoma loan limit will be $554,300, effectively, giving mortgage applicants $33,350 more in borrowing ability under Conforming Loan guidelines.
Jumbo Loans
These are loan sizes that exceed the county maximum loan limit. In some high cost counties such as San Francisco, California for example the maximum county Conforming Loan Limit is $625,500 and any loan size over this amount, is automatically Jumbo. Jumbo Loans traditionally have tighter credit and equity guidelines than Conventional Loans, but lately have been more bullish on offering attractive interest rates. This can be attributed to a more exuberant economy beginning to take shape.
Most distinctly important to note, mortgage applicants opting to avoid more pricey FHA Loans, can apply for a Conventional loan under under the Conforming loan size with a little as 5% equity. There is a 3% down Conventional program, but the program does have income limitations, so for illustrative purposes 5%, is considered the norm for loan amounts up to $417k. Should the size of loan be greater than 417k, a consumer can refinance or purchase a home with as little as 10% equity up to $554,300 in the County of Sonoma. Such a loan would also fall into the category of having more flexibility in terms of credit score, multiple financeD properties, as well as credit history than a borrower seeking a loan size over this amount in the Jumbo category.
Additionally, borrowers in the market for financing a rental property or a second home also benefit from the loan limit increases. While the requirement for a down payment for a second home still remains at 10%, a consumer will be able to finance more in 2016 than at current levels. Same logic for a rental property, the down payment requirement still is 20% (some lenders at 15%), but in 2016, the advantage will be the ability to borrow more while remaining under the hub of Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency clearly is taking a proactive approach to continuing to support a healthy housing market through new loan originations. 39 high cost counties have had increases in the loan limits across the United States drawing the conclusion Fannie Mae and Freddie Mac have a reinvigorated appetite for lucrative mortgage-backed securities.
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