By Peter Boutell
Lending a Hand
Around Thanksgiving of each year, Freddie Mac and Fannie Mae and HUD announce the maximum loan amounts that they will accept from lenders for the next calendar year. These loan limits are referred to as ‘conforming’ loan limits and they typically carry the lowest mortgage rates available.
Traditionally, these loan limits track the nation’s median home prices. When the home prices go up from one year to the next, the conforming loan limit goes up and vice versa. When I started originating loans in 1986, the conforming loan limit was set at $133,250. By the way, the average home price in Santa Cruz County in 1986 was $153,000.
In October of this year the average home price (according to the Santa Cruz County Association of Realtors’ website) was $946,628 (however, the median price was $860,000). Following the mortgage crisis of 2008 Freddie and Fannie set up the current two-tiered system: one limit for “general” and one limit for “high cost” areas.
From 2006 to 2016, the “general” loan limit held steady at $417,000 and for “high cost” areas such as Santa Cruz County, the loan limit had been set at $625,500 and then one year ago the 2017 “general” limit was raised to $424,100 and the limit for “high cost” areas was increased to $636,150. The new “general” loan limit is rising to $453,100 and the “high cost” loan limit is rising to $679,650 in Santa Cruz County.
These loan limits vary from county to county. For example, in Monterey County, the new “high cost” limit will be $615,250. Beginning Dec. 1, the best rates in Santa Cruz County will be available for loan amounts at or below less than $453,650 and slightly higher rates and more restrictive underwriting will remain for loan amounts between $453,650 and $679,650.
Loan amounts greater than the $679,650 are referred to as ‘jumbo’ loans and carry stricter underwriting guidelines but sometimes lower rates.
New loan limits for FHA and VA loans have not been announced.
The current maximum loan limit for the VA loans that do not require a down payment or mortgage insurance is $636,150. Or, with a small down payment, a veteran can buy a more expensive home. For example, with just $40,962, a veteran can buy a home for $800,000 with a VA loan without the requirement of mortgage insurance.
The current maximum loan amount for FHA loans is $636,150. FHA loans offer the low down payment option of just 3.5 percent and accept gift funds from relatives for the down payment. FHA loans are available for any homebuyer or homeowner without income restrictions or first-time homebuyer restrictions.
Refinancing homeowners and homebuyers benefit from these higher loan limits as rates for conforming loans are typically lower and the underwriting guidelines are more lenient than for the jumbo loans (loan amounts above $679,650). Freddie Mac and Fannie Mae also provide financing for properties with up to four units.
The new loan limit for high priced areas such as Santa Cruz County for a duplex is $870,225, triplex limit is $1,051,875 and the four plex limit is $1,307,175. While FHA loans are only for owner occupied homes, Freddie and Fannie will finance owner occupied, vacation or investment properties. Rates for the non-owner occupied homes typically carry rates about one-half of 1 percent higher.
Local mortgage consultant Peter Boutell has been writing this weekly column for the Sentinel since 1995. Send questions to Peter@SantaCruzHomeFinance.com. Archived columns are available at www.PeterBoutell.com or at www.santacruzsentinel.com/topic/Peter Boutell.
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