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Chris Salese

Our two favorite loan elves, Fannie Mae and Freddie Mac, are back in the news spreading some holiday cheer.

Sitting on their shelf in Washington, D.C., for the third year in a row, they recently announced they were increasing their maximum base conforming and high-cost area loan limits starting on Jan. 1, 2019 to better reflect the change in the average U.S. home price.

However, before we get carried away with our eggnog celebration, let’s slowly unwrap this package and carefully look inside of it.

Let’s say you wanted to buy a home for about $500,000.

In 2016, the maximum base conforming loan amount was $417,000. At that time, you needed about $83,000 for your down-payment or close to 17 percent of the purchase price.

In 2017, assuming the same price of $500,000, the loan limit increased to $424,100, which resulted in a down-payment of about $75,900 or close to 15 percent of the purchase price.

In 2018, the loan limit increased again, to $453,100, resulting in a down-payment requirement of $46,900 or close to 9 percent of the purchase price.

In 2019, the loan limit moves up to $484,350, which is only $15,650 or close to 3 percent of the same $500,000 purchase price.

If I lost you for a moment, I’ll bring you back in now.

As you can see, the minimum down-payment requirement slowly decreased from about 17 percent down to 3 percent during this time.

Although you would likely incur a bit of private mortgage insurance, unless you opted for some form of secondary financing, this is still not a bad deal if you have a good loan application.

But the reason, of course, behind any increase in loan limits to begin with is that many homes didn’t stay flat value wise during this time.

Therefore, in high cost or high value areas, Fannie and Freddie allow for up to 150 percent of the base conforming loan amount to still flow through their systems.

Going forward, this amount moves up from $679,650 in 2018 to $726,525 in 2019.

If you couldn’t find that house you were looking for at $500,000 with about 3 percent down, now you can expand your search in 2019 all the way up to nearly a $765,000 purchase price with as little as 5 percent down under this new high value loan limit.

Unfortunately, despite the loan limit improvements, Fannie and Freddie are sometimes not the best priced options for borrowers because of the additional fees that they assess on their loans behind the scenes called LLPAs (loan level price adjustments).

In turn, this has created an opportunity for many jumbo loan investors to reduce their minimum loan amount threshold and offer more products in the same space. It also puts more pressure on government loans, such as the FHA, to fill the void.

Either way, the notoriously harder underwriting guidelines of jumbo investors and the expensive upfront mortgage insurance premium on government loans, are the primary alternatives for consumers who get priced out by their two friendly elves.

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Chris Salese can be reached at chris@delsurmortgage.com or 707-363-4439. He is a licensed California mortgage lender (LO NMLS #254469 — CA-DBO #254469 Corp NMLS #1169 Equal Housing Lender.

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