Lending a Hand
In November of each year Freddie Mac and Fannie Mae and HUD announce the maximum loan amounts that they will accept from lenders for the next calendar year. These loan limits are referred to as ‘conforming’ loan limits and they typically carry the lowest mortgage rates available.
Traditionally, these loan limits track the nation’s median home prices. When the home prices go up from one year to the next, the conforming loan limit goes up and vice versa. When I started originating loans in 1986, the conforming loan limit was set at $133,250. By the way, the average home price in Santa Cruz County in 1986 was $153,000.
In October of this year the average home price (according to the Santa Cruz County Association of Realtors’ website) was $900,171 (however, the median price was $787,500).
Since 2006, the “general” loan limit had been set at $417,000 and for “High Cost” areas such as Santa Cruz County, the loan limit had been set at $625,500; however, just this week the “general” limit was raised to $424,100 and the limit for “high cost” areas was increased to $636,150.
The “high cost” limits vary from county to county. For example, Monterey County’s “high cost” limit was raised this week from $529,000 to $575,000. Following the mortgage crisis of 2008 Freddie and Fannie set up the current two-tiered system: one limit for “general” and one limit for “high cost” areas.
The best rates today are available for loan amounts at or less than $424,100 and slightly higher rates and more restrictive underwriting will remain for loan amounts from $424,100 and $636,150, which are referred to as high-balance limits. Loan amounts more than the $636,150 are referred to as ‘jumbo’ loans and carry stricter underwriting guidelines.
New loan limits for FHA and VA loans have not been announced as of this writing. The current maximum loan limit for the VA loans that do not require a down payment or mortgage insurance is $625,500. Or, with a small down payment, a veteran can buy a more expensive home.
For example, with just $43,625, a veteran can buy a home for $800,000 with a VA loan without the requirement of mortgage insurance. The current maximum loan amount for FHA loans is $625,500.
FHA loans offer the down payment of 3.5 percent and accept gift funds from relatives for the down payment. FHA loans are available for any homebuyer or homeowner without income restrictions.
Refinancing homeowners and homebuyers benefit from these higher loan limits as rates for conforming loans are typically lower and the underwriting guidelines are more lenient than for the jumbo loans (loan amounts above $636,150). Freddie Mac and Fannie Mae also provide financing for properties with up to four units. The 2017 loan limit for high priced areas like Santa Cruz County for a duplex is $814,500, triplex limit is $984,525 and the fourplex limit is $1,223,475.
While FHA loans are only for owner occupied homes, Freddie and Fannie will finance owner occupied, vacation or investment properties. Rates for the non-owner occupied homes typically carry rates about one half of 1 percent higher.
Santa Cruz Home Finance