2018 loan limits move up to $453,100
Conventional / conforming loan limits are up — way up — and it could benefit home buyers and refinancing households in 2018.
Last year, Fannie Mae- and Freddie Mac-approvable mortgage amounts increased for the first time in 11 years. Thanks to rising home prices, maximum amounts took just one year to rise again.
Loan limits were stuck at $417,000 for more than a decade. In 2017, they crept up to $424,100. But, according to the nation’s housing agencies, conventional / conforming loan limits were not keeping pace with the trend to “buy bigger” as this decade rolled on.
According to the National Association of REALTORS®, home sales under $250,000 have risen just 0.6% since last year, while $500,000+ home sales have skyrocketed more than 14%.
Home buyers and refinancing homeowners can finally get a bigger mortgage — up to $453,100 nationwide, and even more in high-cost areas.
That comes as welcome relief. Although jumbo loan mortgage rates are a screaming deal, they are difficult to qualify for. Many applicants would rather stay within conforming limits — especially if they don’t have perfect credit and a large down payment.
Now, home buyers can get a very large mortgage at ultra-low rates and with a down payment as low as 3%.
What is a mortgage loan limit?
A loan limit is the maximum amount a lender will approve under certain guidelines.
There is not just one loan limit, but many. Conventional mortgages adhere to one set of loan limits, and FHA another. VA loans loosely follow conventional guidelines, but, technically, VA loans have no limit.
USDA loans have no published loan limits whatsoever.
In the world of conforming loans, Fannie Mae and Freddie Mac limit “borrowable” amounts to keep their nationwide programs available to those who need them.
For instance, Fannie Mae would not want a $10 million loan going through their system. That’s a lot of risk wrapped up in one loan, and the agency would rather issue many smaller loans to those buying typical homes.
Loan limits are a means of standardizing loans nationwide. That gives lenders and investors more confidence in these loans, which pushes mortgage rates down for consumers.
Fortunately, loan limits are on the rise in 2018, and may head even higher next year.
Conforming loan limits for 2018
Lending limits for conventional loans got a nice boost this year. They are up by nearly 7% since 2017 — for a dollar-amount increase of $29,000 — for the standard 1-unit home.
Multi-unit properties got a similar boost.
Standard 2018 loan limits are as follows.
- 1-unit homes: $453,100
- 2-unit homes: $580,150
- 3-unit homes: $701,250
- 4-unit homes: $871,450
Keep in mind that these are only “standard” limits. In 220 areas nationwide, higher limits apply, and are based on the area’s home prices.
These “high-cost” area limits can be significantly higher than standard. Limits in these areas can range anywhere from the above-stated regular limits to the following increased limits:
- 1-unit homes: $679,650
- 2-unit homes: $870,225
- 3-unit homes: $1,051,875
- 4-unit homes: $1,307,175
Areas such as Oakland, California, Arlington, Virginia, and Jackson, Wyoming are at the top of the limits, while cities like Seattle, Washington and Baltimore, Maryland fall within the “floor” and the “ceiling”.
Even higher apply in Hawaii, where a 1-unit home can be financed up to $1,019,475 with a conforming loan.
What if my loan is over the conforming limit?
Remember that the conforming loan limit applies to the loan amount, not the home price.
For instance, a buyer is purchasing a 1-unit home in Boulder, Colorado where the limit is $578,450. The home price is $1 million, and the buyer is putting $450,000 down.
This buyer is eligible for a conforming loan. The final loan amount is $550,000 — well within limits for the area.
Still, many applicants will need financing above their local limit. For them, a number of solutions exist.
Perhaps the most cost-effective method is to choose a piggyback loan. This describes a loan in which a first and second mortgage are opened simultaneously.
Typically, this structure is used to avoid private mortgage insurance. A buyer can get an 80% first mortgage, 10% second mortgage, and put 10% down.
However, these loans are available for those putting 20% down or more. Here’s how it would work.
- Home price: $700,000
- Local conforming limit: $550,000
- Financing needed: $600,000
The buyer could structure his or her loan as follows.
- 1st mortgage: $550,000
- 2nd mortgage: $50,000
The home is purchased with a conforming loan and a small second mortgage. The first mortgage may come with better terms than a jumbo loan, and the second mortgage offers a great rate, too.
What if I’m getting an FHA loan?
FHA loans come with their own loan limits. Currently, FHA limits are as follows.
- 1-unit homes: $294,515
- 2-unit homes: $377,075
- 3-unit homes: $455,800
- 4-unit homes: $566,425
You might notice that FHA’s limits are considerably lower than conforming limits. That’s by design. According to HUD, these limits are just 65% of Fannie Mae / Freddie Mac ones.
That’s because FHA is designed for moderate home buyers. But, FHA publishes many more high-cost areas than does Fannie Mae. In fact, FHA allows higher-than-floor loan amounts in more than 600 areas compared to about 220 areas for conventional loans.
It’s very likely that you live in an area with increased FHA loan limits.
What are today’s mortgage rates for these loan limits?
Mortgage rates for conforming loans are stellar, which is why so many buyers consider a conforming loan before using jumbo financing.
Get a rate quote for your standard or extended-limit conforming loan. Compare to jumbo rates and piggyback mortgage rates to make sure you’re getting the best value.
Tim Lucas
The Mortgage Reports Contributor