Conforming Loan Limits Rise, Reducing the Need for Jumbo Mortgages

  • New 2019 conforming loan limits increased by $31,250 (6.9 percent) for most counties.
  • More than a million of the nation’s priciest homes will no longer require a jumbo mortgage.
  • The Boston and Seattle metro areas, as well as Eagle County, Colo., which includes Vail, will see the biggest jumps in conforming loan limits when they go into effect on January 1, 2019.

More than a million of the nation’s priciest homes will no longer require a jumbo mortgage as a result of new conforming loan limits announced today by the Federal Housing Finance Agency (FHFA).

The new baseline limit for a conforming mortgage on a single-family home in most of the country will be $484,350 in 2019. For 199 counties and territories, the limit is higher – and will rise to a new ceiling of $726,525. Both limits are 6.9 percent higher than 2018, similar to the 7.7 percent increase in the Zillow Home Value Index in the past year. As a result, buyers of homes newly in the conforming range because of these changes could benefit from less strict lending standards or even a lower interest rate.

The typical U.S. home’s value, $221,500, is less than half the new loan limit, but about 6.7 million homes (about 6 percent of the national total) would still require jumbo loans, assuming a 25 percent down payment. In some of the priciest counties, a majority of homes would still exceed the new conforming loan limits: In San Mateo County, a whopping 86 percent of homes would still require jumbo loans to purchase – the highest share in the country.

The FHFA set higher limits in 199 counties and territories, including high-cost counties as well as all of Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

The Boston and Seattle metro areas, as well as Eagle County, Colo., which includes Vail, will see the biggest jumps in conforming loan limits when they go into effect on January 1, 2019. The FHFA raised Boston-area limits by $85,100 and raised Seattle-area limits by $59,525. Based on current home values, those increases mean about 26 percent fewer homes would require jumbo loans in Boston and 22 percent fewer in Seattle.

After loans are designated conforming by the FHFA, they can be bought by Fannie Mae and Freddie Mac, making them a safer bet for lenders to originate. That means lenders may generally apply looser underwriting standards to conforming loans, while they typically require larger down payments and higher credit scores for jumbo loans.

Higher conforming loan limits make it easier for buyers in pricey markets, but also might accelerate price growth by making it easier to borrow in areas where prices have increased very sharply. By permitting Fannie Mae and Freddie Mac to buy larger mortgages, higher loan limits also increase their exposure to default risk on those loans.

Mortgage rates for conventional, 30-year fixed rate mortgages have seen considerable growth this year, making monthly housing costs more expensive for buyers. Some home shoppers are willing to increase their down payments in order to push their mortgages beneath the conforming loan limit. Historically, jumbo mortgage rates have been higher than conventional mortgage rates, because they involve additional risks for lenders. However, in recent years, jumbo and conventional mortgage rates have converged due to rising fees associated with conforming loans and the riskier credit profile of conventional borrowers. Today, the typical conforming 30-year fixed mortgage rate quoted on Zillow was 4.58 percent, compared to 4.51 percent for the typical jumbo 30-year fixed mortgage. Throughout 2017, jumbo loans typically carried interest rates about 20 basis points higher than conforming loans.

The map below shows the county-level fraction of of homes requiring a jumbo loan under the new conforming loan limits.

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