Nov. 28, 2018.
It’s a great thing for homebuyers. Especially if you’re thinking about buying in 2019. Following a decade of inactivity, the Federal Housing Financing Agency just increased conforming loan limits for the third year in a row.
You could get 7-percent more house when you buy
New conforming loan limits for 2019 will increase by 6.9 percent, making it easier for many buyers to purchase larger homes or afford to buy in pricier areas.
Here’s a quick takeaway of the changes:
- New limits go into effect on January 1, 2019.
- $484,350 is the new base loan limit for most of the U.S.
- $726,525 is the new ceiling loan limit for most high-cost areas.
- These limits apply to one-unit properties, with separate limits for two-to-four unit properties.
- Housing prices are still rising, which is why 2019’s conforming loan limits have increased.
- Conforming loans meet Fannie Mae and Freddie Mac criteria and normally come with lower interest rates and lower monthly payments for buyers who qualify.
Conforming loan limits are established by the Housing and Economic Recovery Act (HERA), reviewed yearly, and updated based on housing prices. Since home prices can fluctuate quite a bit depending on the area, HERA created a formula to come up with baseline loan limits in higher-priced states. Loan limits may vary but won’t exceed the new ceiling of $726,520, set at 150 percent of the baseline.
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Do you really have to save 7 years for a down payment? Probably not.
Doing the math, a higher loan limit might come with a higher down payment, potentially adding an extra burden if you’re hoping to buy. Thankfully, the 20-percent rule no longer necessarily applies.
This is helpful for borrowers who don’t have seven years to waste. These are the same borrowers who may be dutifully putting away 10 percent of their income each month and saving an average of 7.2 years for a 20-percent down payment on a home at median value.
Many buyers start saving far in advance before ever talking to a loan officer. Meaning, borrowers may be wasting seven years setting aside money toward a potentially unnecessary goal, unaware that conventional conforming loans can have a much lower down payment threshold.
Putting down 20 percent can be a good idea if you have it. A higher down payment can lower your loan-to-value ratio (LTV), translated as your risk to a lender, and may come with a lower interest rate. But in reality, conventional conforming loans only require a minimum down payment of 3 to 5 percent. Conforming loans may be easier to qualify for, have more forgiving credit requirements, and may offer both a lower down payment and interest rate.
If you’re ready to buy, you can beat the seven-year odds and take weeks or months to come up with your down payment. These ideas can help:
- Save short-term. Here’s an easy way to sock away cash for your down payment and save seven years while you’re at it: Direct deposit part of your paycheck into your savings. Contributing $200 every two weeks could net $5,200 after a full year, excluding interest. If you plan to buy in 2019, you could lock in a lower rate at today’s limits and have enough saved in a few months by the time the new loan limits increase.
- Set aside your tax refund. The new conforming loan limits are just in time for tax season. You could also use your tax refund to pay for a down payment in the coming year. Most people got back an average of $2,895 last year, and this may be enough to help offset the upfront cost of buying.
- Convert your bitcoin. You can start thanking your past self for investing in cryptocurrency. Bitcoin can be converted to U.S. currency, with proceeds deposited into an eligible asset account. Once the conversion is made, you can use funds from your account to buy a house or make a down payment — as long as you have a full paper trail and meet any purchase requirements.
- Get help from your seller. Scratch your seller’s back by paying their asking price, and they may scratch yours too. While seller-funded down payment assistance programs haven’t been in effect since 2008 — where a seller gives funds to a down payment assistance organization, and the organization gifts the down payment amount to the buyer — you can ask a seller to cover all or part of your closing. Seller-paid closing costs can indirectly help by saving you an average of $3,700 in upfront fees that can go toward your down payment.
One important note: To get a jump on these new loan limits, the first step is to get prequalified. Finding out how much house you can afford will give you a better idea of your estimated down payment. You can also chat with your loan officer about your options to decide on a down payment amount — which can affect how much you pay in monthly mortgage — to come up with a comfortable number.
With new conforming loan limits, you can buy more house than you could even a year ago, and a larger down payment may not be an issue.
Don’t wait for January: Lock your loan now and increase limits later
The good news is that, with higher loan limits, your buying power is likely to increase. The better news is that you can get prequalified in minutes, lock in a lower mortgage rate now at the current maximum loan amount, and then automatically increase your loan amount when the 2019 limits go into effect. Click here to get started.
For educational purposes only. Please contact a qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.