This is the third year running that the Federal Housing Finance Agency has elected to increase the maximum conforming loan limit on mortgages. The maximum conforming loan limits on mortgages acquired by Fannie Mae and Freddie Mac did not previously increase for a startling ten years.
The Facts About Loan Limits
The Federal Housing Finance Agency announced on November 27, 2018, that conforming loan limits are set to ride from this year’s total of $453,100 to $484,350 for the year 2019. This significant 6.9% increase shows a notable difference between this year’s loan and the next.
Between the years 2006 and 2016, there were no increases whatsoever when it came to the conforming loan limits. This increase is excellent news for homeowners as a higher conforming loan means it’s easier to get on the property ladder.
Prospective home buyers should now find the process much smoother when it comes to purchasing their first or second house.
The Housing and Economic Recovery Act of 2008 regulates the conforming loan limits for Fannie and Freddie, which set the baseline loan limit traditionally at $417,000.
Every year the Federal Housing Finance Agency deliberates the limits so that the average home prices across the country are reflected.
Due to the increase in home prices this year, this has caused the conforming loan limits in 2019 to increase. Every type of loan has a maxim lending limit, which is put into place by its corresponding agency. There are variations, depending on the time of loan you’re looking at.
For example, FHA loans have county loan limits that work out to be slightly lower than conforming loans. The FHA tend to set their own loan limits and have yet to mention any upcoming changes.
Jumbo loans take the lead where conforming loans finish. Of course, multifamily properties and more expensive countries will also be much higher than the starting conforming limit of $484,350 in 2019 next year.
Although every county has their own conforming loan limit, there are high-cost areas in the U.S. and neighboring regions. So if you are living in a more affluent area, the house prices are inevitably going to be much higher.
Agencies such as Fannie and Freddie do provide expanded loan limits to take these higher prices into account. These increased loan levels are labeled as high balance conforming loans.
This gives the buyer a huge advantage to borrow a lot more at conforming rates when purchasing a home in one of the more expensive counties.
It could be said that conforming lending terms and conditions are much more flexible than jumbo loans. The guidelines associated with jumbo lending are more rigorous but with sensible reasoning behind it.
The lenders are exposed to higher risk; as more money is being loaned, the borrowers are required to put down a higher down payment and have a solid track record on their credit score.
In order to explain the idea of jumbo loans, you have to first consider the conforming threshold. If it is even exceeded by a mere $1, it ventures into the territory of jumbo loans, which are also known as nonconforming loans.
All in all, jumbo loans don’t normally provide options such as renovation loans, 3% down or 50% debt ratios, but they will finance primary and secondary properties at traditionally competitive rates.
Comparing & Contrasting Jumbo VS. Conforming Loans
Conforming loan rates tend to be more competitive than jumbo rates. Both fixed rate and adjustable rates are available for both conforming and jumbo mortgages. Adjustable rate mortgages are more popular in the jumbo realm and although fixed rates are an option, the rates can be notably higher than those associated with conforming loans.
You could be earning any type of income in order to qualify for a conforming loan or a jumbo loan. Your personal income will be taken into consideration, but your mortgage advisor will be able to tell you more about your options and rights. In this sense, both types of loan are very similar.
Every lender will have a different requirement when it comes to the borrower’s credit score. On average conforming loans need you to have a credit score of 620, whereas jumbo loans require a slightly higher minimum score of 700 in order to qualify.
In order to obtain a conforming loan, the lender will ideally need to see almost three months’ worth of savings in your bank account. One full month’s mortgage payment will be considered as one month of savings in the lender’s eyes.
In contrast, a jumbo loan lender will not only require a downpayment and closing cost but also at least a year’s worth of savings.
For a conforming loan, you only require one property appraisal, but you might be asked to pay for two evaluations if you are opting for a jumbo loan.
In order to qualify for a conforming loan, the lenders will adopt a debt to income ratio for each individual borrower. The guidelines are quite flexible, but your gross income is used to calculate whether you will qualify or not.
Similarly, jumbo loans also use debt to income ratios, but the terms aren’t quite as flexible. This depends mostly on the lender’s individual tendencies, so make sure you explore all of your options.
How This Helps You Buy a Home
Down payments are arguably the biggest hurdle that most prospective buyers face when looking to invest in a new home. With today’s conforming loans, buying a home is actually made much simpler, with just a 3% down payment being required. A higher conforming loan limit makes it easier for more buyers to invest in a property.
With more borrowers now becoming eligible to purchase a home, you could say that a conforming loan limit is the friendliest one on the market. With lower down payments, lower interest rates and more flexible qualifying requirements, the advantages are abundantly clear.
The Prices Of Homes In Chicago
It is predicted that there will be a 6.1% growth in prices for the Chicago area next year. At the moment home prices average at $232,000 but are estimated to reach $250,000 by October 2019.
Up until this moment, it could be suggested that the Chicago housing market has underperformed, however with employment growing the prices are being pushed upward.
The higher conforming loan limit is a hugely positive thing for someone looking to buy a home in Chicago. As home prices continue to rise, the mortgage loan limits are increasing in tandem, making it much easier for home buyers to obtain the loan they need.
This long term projection of house prices portrays hugely strong optimism about the growth of the Chicago housing market.
If you want to find out more about the maximum loan limits by county, click here for a detailed online tool. Please see the chart below for more information on how the loan limits have changed and how the average price of houses in Chicago have altered over the years.
A and N Mortgage Company
Buying a new home is one of the biggest investments you will ever make in your life, whether you’re a first-time buyer or a multi-homeowner. You always want to seek out the best possible mortgage for your individual situation, which most people find incredibly overwhelming. A and N Mortgage Services will be there to support you through the entire process.
As a well-respected and established Chicago mortgage company, A and N Mortgage banking company will help you apply for a home loan and find an arrangement that works best for you. Here your individual circumstances will be taken into account.
You can also make use of our free mortgage calculators as a resource to help you understand your options. If you have any questions about the latest announcement with regards to the conforming loan limit on mortgages, please do not hesitate to contact us.
Getting ready to complete your loan application? Make sure you find a reputable mortgage company to work with. If the Illinois loan limit is relevant to you and your family, then contact a mortgage company in Chicago for more information.
A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.