Wednesday, November 28, 2018 / by Geoffrey Zahler
The Federal Fair Housing Administration (FHFA) just announced yesterday that they were increasing the conforming loan limits beginning in 2019. GREAT NEWS! But... what does this REALLY mean to you? Keep reading!
In 2018, the conforming loan limit is $453,100. This was an increase from 2017 which was just under $425,000. A loan is considered "conforming" if it can be resold to Fannie Mae or Freddie Mac, the two largest holders of Mortgages in the country (your loan is not always serviced by the company you get a loan from, but that's a different topic for a different day). When a loan is conforming, generally speaking, you can put less than 20% down for a down payment, have very competitive rates, and overall, less hassles getting the funding.
When loan amounts jump above this level, it is considered a "JUMBO" loan. While you can still find Jumbo programs that can lend with less than 20% down, sometimes the fees associated with these programs are expensive. Also, generally speaking, Jumbo Loans have a higher Interest Rate than conforming loans. No one likes paying more, right?
So, for 2018, if you could keep your loan limit below $453,100, this was a good thing. And remember, this is not the PURCHASE price, but the loan level. If you were conforming, and had good income and credit scores, you were able to get conventional financing with as little as about 5% down. So, for this post, we'll use that 5% down payment number.
If you wanted to absolutely max out your loan level and keep your down payment at 5%, doing some reverse math, you could buy a home for about $476,950. 95% of this amount is right at $453,100 (I rounded by less than $5). Anything MORE than $476,950, you would have to put more than 5% down. So if you found a home that was $500,000, you would have to come up with $46,900 for a down payment, which is about 9.4% down, which would be more than double what your downpayment is at 5%. While that's not bad, it's still putting a lower limit on what you can do, financially, if you're looking at homes in the $475,000+ range. To give you an idea of what $475,000 means here in Las Vegas; in the last 365 days, there were 3520 units sold in our MLS with sales prices greater than $475,000!
Fast forward past the holidays. Starting January 1, 2019, the new conforming level is going to be $484,350. That's a limit increase of $31,250, or roughly 6.9% increase (our market is up 10% or so for the year).
Using the same math as we did above, if you wanted to put 5% down on a home, you can now afford a property up to $509,842. That's $33,000 more in house value that you can buy, using 5% down! In 2018, remember, if you wanted to buy a home that was $500,000 and remain "conforming", you would have borrow the max, $453,100 and have to come up with a down payment of $46,900, or about 9.4% down. NOW, in 2019, that same $500,000 home can be purchased conforming, and you can get away with only doing 5% down. 5% would be $25,000, leaving you a loan of $475,000, which is less than the conforming level!
Buying the SAME house in 2018 vs 2019 (with all else being equal), can cost you $21,900 LESS in terms of down payment. Now, I never advise to push off a purchase if you're in the market. Rates can jump, inventory can get squeezed, or that house you've been eyeing on my website (www.searchvegasareahouses.com) could be sold to someone else. And as always, remember, I am not a Mortgage professional, but here to give you the highlights. If you're looking and this info could affect a purchase for you, please let me know, and we'll put you in touch with the RIGHT people to have more ind depth conversations.