Throughout the U.S., the average value of a single-family residence has grown by double digits for more than two years. Area homeowners have been rightly pleased to see how rapidly their own home’s market values have continued to appreciate. With increases at those levels, it’s only to be expected that sellers are delighted—but buyers, less so.
One of the inevitable fallouts is that buyers seeking home loans this fall need mortgages that are greater than ‘conforming’ loan limits. Fannie Mae and Freddie Mac guarantee to purchase loans from lenders when they qualify under the conforming loan guidelines. The quasi-federal behemoths enable loan originators to lower interest rates they offer home buyers when they promise to purchase them, lowering risk. But as home values have risen, home loan amounts exceed those limits. Such loans are then classified as ‘jumbos’—no longer purchasable by Fannie and Freddie. The added risk to the loan originators means higher monthly payment amounts for buyers. But help is on the way.
Needless to say, both buyers and the sellers would like to see as many buyers as possible competing for their properties. The help that will arrive on January 1 comes in the form of a major adjustment in the conforming loan limit. Although the amount may fall short of the record increase set in 2006 (it was +15.9%), it will still amount to more than $75,000 in most markets.
For sellers, it’s predicted to make an increase in what buyers can afford to offer. Jumbos aren’t just usually more costly—they also have stricter qualification criteria (such as higher down payment requirements and more stringent debt-to-income ratios). That seems likely. Already in some areas, lenders are confident enough that they will be able to sell larger loans to Fannie and Freddie by jumping the gun. They’re already said to be writing their own higher limit ‘conforming’ loan offers.