Uncle Sam just said yes to higher ‘comforming loan’ limits

By Jeff Lazerson

11/30/17

What I think: Let’s talk about a happy holiday season winning streak for high-priced areas like Southern California.

For the second year in a row, the Federal Housing Finance Agency increased the maximum loan limits for Fannie Mae and Freddie Mac. For 2018, conforming loans limits have jumped to $453,100 from $424,100 for a single unit.

Very nice, indeed!

For two units, the new limit is $580,150; for three units the new limit is $701,250. And for four units, we find a new maximum loan amount of $871,450.

And, for high-cost areas like Orange and Los Angeles counties, the so-called agency high-balance maximum limit, which generally runs about one-quarter point higher than conforming loans, increased to $679,650 from its current $636,150.

For high-cost two units, we increase to $870,225; three units, we land at $1,051,875; and a four-unit provides an astounding $1,307,175 maximum loan.

Veterans Affairs zero-down payment loan limits also go to $453,100 and $679,650 respectively (applies to one unit only).

No announcement yet from the Federal Housing Administration on any possible increase in its loan limits.

Whether you are buying or refinancing, before you get too giddy and push the “send” button on that loan application, there are a few things to consider:

1. If your new loan amount is going to be higher than $500,000, consider that the House’s version of the tax reform proposal grandfathers existing first mortgage debt up to $1 million if it was taken out Nov. 2 or earlier. Depending on if and what actually passes into law, you might see a new mortgage interest tax deduction limit. Now, more than ever, check in with your tax advisor.
2. Don’t rule out shopping for jumbo loans even if your loan amount does not exceed the maximum conventional limits. Some jumbo investors allow loan sizes under the jumbo limits. Some are very aggressively priced and have fewer negative pricing hits for cash-out or combining an existing first and second mortgage into one loan.
3. With the continuing rise of short-term interest rates (prime rate is 4.25 percent now and likely to go up in December), you might want to think hard about getting rid of any home equity line of credit debt and rolling it into a new first mortgage, especially with these higher loan limits.
4. Shopping around is always to your advantage. Shop rates, fees, speed of service and reputation. Just because you get a quote, it doesn’t guarantee it will happen.
5. Focus on no-cost financing. We are likely to see lower rates in the next year or two. You may be able to do another no-cost loan and knock your rate down again in the near future.

Rate news summary

From Freddie Mac’s weekly survey: The 30-year fixed rate averaged 3.90 percent, 2 basis points better than last week’s 3.92 percent. The 15-year fixed averaged 3.30, also 2 basis points better than last week’s 3.32 percent.

The Mortgage Bankers Association reported a 3.1 percent decrease in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year conforming fixed rate on a conforming $453,100 loan, last year’s rate of 4.08 percent and payment of $2,184 was $47 more than this week’s payment of $2,137.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at zero cost: A 15-year at 3.375 percent, a 30-year at 3.875 percent, a 15-year agency high-balance ($424,100 to $636,150 until Dec. 31) at 3.625 percent, a 30-year agency high-balance at 4.125 percent, a 15-year jumbo (over $636,150 until Dec. 31) at 4.0 percent and a 30-year jumbo at 4.375 percent.

If you have questions or comments, please contact Jeff Lazerson by clicking here.