On November 23, the Federal Housing Finance Agency (FHFA) announced that it would be increasing conforming loan limits for 2017, for most counties across the country.
They are raising the "baseline" loan limit from $417,000 to $424,100. This is the first time federal housing officials have raised the baseline since 2006. The agency will also increase the conforming loan limits for "higher-cost areas" like San Francisco and New York City. This is being done in response to home-price gains that occurred during 2016.
Higher Loan Limits for 2017
According to the agency's November 23rd news release:
"The Federal Housing Finance Agency (FHFA) today announced that the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2017 will increase. In most of the country, the 2017 maximum loan limit for one-unit properties will be $424,100, an increase from $417,000. This will be the first increase in the baseline loan limit since 2006. In higher-cost areas, higher loan limits will be in effect."
For most counties across the nation, the new loan limit for 2017 will be $424,100. That's for a single-family home. There are higher limits for multi-family properties, such as duplexes and triplexes.
Conforming loan limits vary from one county to the next. You'll find a full list for all U.S. counties on LoanLimits.org.
What Is a Conforming Loan?
Here's a quick lesson in mortgage lingo, in case you're not familiar with these terms. A conforming home loan is one that meets or "conforms" to certain guidelines used by Freddie Mac and Fannie Mae. These two government-sponsored corporations operate in the secondary mortgage market, buying home loans from lenders and selling them to investors.
Fannie and Freddie can only purchase loans that meet certain guidelines, and the size is the most important criteria. In short, a conforming home loan can be sold into the secondary mortgage market, while a non-conforming "jumbo" loan cannot.
Jumbo Mortgages Still Available
Home buyers who need to borrow more than the conforming loan limit for their county still have options. They'll just have to use a jumbo mortgage. This is a home loan that exceeds the caps set by the Federal Housing Finance Agency, and therefore cannot be sold to Fannie Mae or Freddie Mac.
Jumbo loans are still widely available in the U.S., but the qualification criteria can be more strict due to the larger size and higher level of risk involved. Mortgage lenders often require larger down payments and higher credit scores for borrowers seeking these non-conforming loans.
A Response to Rising Home Prices
Conforming loan limits are based on median home prices. So when prices rise significantly over the course of a year, federal housing officials often increase loan limits. Sometimes they do this on a county-by-county basis, raising the limits for some areas while keeping them the same in other areas. This is what they did from 2015 to 2016. But this time around, they boosted the caps for nearly all counties in the U.S.
The nationwide increase for 2017 is significant, because it's the first increase in the baseline loan limit since 2006. This was done to keep pace with rising home values.