Some people like to dream big. Others like to live big -- literally, in a larger, more expensive home. But securing financing for such a pricey purchase can be difficult, as limits on conforming loans backed by the U.S. government typically only went so far. Until now, that is.
Since 2017 began, the ceiling on conforming loans has been raised, giving you a bit more elbow and headroom in which to qualify for a maximum mortgage secured by Fannie Mae and Freddie Mac.
Today, the conforming loan limits are $424,100 (up from $417,000) in most U.S. counties including the Chicago area, and $636,150 (vs. $625,500 previously) in costlier markets such as New York City and San Francisco. While the increase of a few thousand dollars may not sound like much, it's a big deal, say the experts.
"Although the loan limit increase isn't substantial, it will ultimately create more buying ability, making mortgage financing a bit easier, particularly for buyers in high-cost parts of the country," says Theresa Williams-Barrett, vice president of consumer lending for Affinity Federal Credit Union in Basking Ridge, New Jersey.
Tyler Case, mortgage loan officer for Pittsburgh-headquartered PNC Bank, agrees that the effect of the increases is limited but still positive for borrowers overall, especially those who would have otherwise needed to apply for a jumbo mortgage -- a loan that surpasses the aforementioned conforming loan limits.
"Those who need to secure financing between $417,000 and $424,100 and between $625,500 and $636,150, and who would not have been able to meet the more restrictive underwriting guidelines to obtain a jumbo loan, will be the main beneficiaries of this change," Case says.
Conforming loan limits increased for the first time in over a decade because of an increase in housing prices and home values nationally and to adjust for inflation.
"The Housing and Economic Recovery Act of 2008 restricted government-sponsored enterprises like Freddie Mac and Fannie Mae from increasing these limits until real estate prices exceeded their pre-crises highs, which were reached around July 2006," Case says.
Prospective buyers who need extra financial help in the form of a jumbo loan also have reasons to be optimistic, says Patrick Lamb, president of Scottsdale, Arizona-based Homeowners Financial Group.
"Fortunately, as the real estate market has recovered, options for jumbo loan financing, including loans that require less than a 20 percent down payment, have significantly expanded," Lamb says. "Because of the increased liquidity for jumbo loans, it's become easier for homebuyers to obtain financing for larger homes."
That's not to say that obtaining a jumbo mortgage is a piece of cake, however. These loans are not sold to or securitized by government agencies; instead, they're commonly sold to large banks, institutional investors or other private companies and are either held in portfolios or securitized through private residential mortgage-backed securities transactions. The fixed interest rate on jumbo mortgages may be higher, and you usually need a debt-to-income ratio of no higher than 43 percent, a credit score of 720 or greater, several months' worth of backup savings, and a more established history of income.
"But there are jumbo lenders out there that can go down to a 680 credit score or 10 percent down on an adjustable-rate mortgage, in some cases," says Andrew Saltman, CEO of Carbon Capital in Ponte Vedra Beach, Florida.
As always, due diligence is essential when seeking financing. Prepare to shop around among different direct lenders, mortgage brokers and mortgage bankers who also act as brokers; if you want to go jumbo, seek out a knowledgeable lender who works with numerous jumbo lenders/investors.
Williams Barrett recommends first getting prequalified for a mortgage by working with an experienced mortgage professional who can help you understand the different program options and terms available to you.
"Second, find a Realtor to work with who can help you find your dream home," she says. "And third, circle back with the lender who prequalified your mortgage to finalize the process."