New York Times
2 December 2016
FEDERAL regulators have raised the amount of money that home buyers can borrow while still qualifying for more flexible mortgage terms, starting next year.
The change for 2017 isn’t huge, but it may help some buyers who are struggling to afford a home, especially in areas with relatively few homes for sale and rising home prices, real estate experts say.
Here is what is changing: For the first time in a decade, the Federal Housing Finance Agency raised the dollar limit on loans that qualify for purchase by Fannie Mae and Freddie Mac, the government-controlled mortgage finance giants. Such conventional or “conforming” loans are less risky for lenders, so they typically qualify for lower down payments, and often lower interest rates, allowing more borrowers to buy a home as prices rise.
Loans that exceed the limit are considered “jumbo” mortgages, which lenders hold themselves or sell to private investors; they typically require larger down payments and stricter underwriting.
The current loan limit of $417,000 has remained unchanged since 2006; a law put in place during the housing downturn mandated that home prices had to rise to precrash levels before the limit could be increased. Last week, the housing finance agency said its index showed that average home prices had risen above 2007 levels, allowing the loan limit to be raised.
Starting in January, the loan limit for single-family homes will increase by $7,000, to just over $424,000, in most parts of the country. In some expensive areas — like Boston, New York City, San Francisco, Los Angeles and Washington, D.C. — the limit will go to just over $686,000, and it will be even higher in a few markets in Hawaii and Alaska.
The “modest” move is another recognition that housing markets have recovered from the real-estate crash, said David Stevens, chief executive of the Mortgage Bankers Association.
The higher limit will give more borrowers access to the more-flexible terms of government-backed loans, helping to ensure that home buyers can still get affordable mortgages as home values rise, said Aaron Terrazas, a senior economist with the real estate website Zillow.
Zillow expects home prices to rise 3.6 percent in 2017 and noted that in some markets — such as the resort area of the Hamptons outside New York City — homes are worth more now than ever.
Zillow estimates that about 30,000 more homes in the New York metropolitan area will fall into conforming loan territory because of the new limits.
“It provides a little bit more wiggle room,” Mr. Terrazas said.
Still, some real estate professionals say the $7,000 increase, amounting to a rise of less than 2 percent, isn’t large enough to offset spiraling home prices in many markets. Keith Dunham, chief executive of HomeCity Real Estate in Austin, Tex., said that in his area, the housing supply was not sufficient to meet the rising demand from people moving to Austin, a popular technology-oriented city, so the modestly higher loan limit would probably not make a big difference. “It doesn’t move the needle,” he said.
Still, Elizabeth Ann Stribling-Kivlan, president of Stribling & Associates in New York City, said the move might provide a psychological boost for home shoppers. “It gives extra confidence that one can buy a home,” she said.
Here are some questions and answers about mortgage loans:
How large a down payment do I need for a conventional loan?
The standard requirement is 20 percent down, but conventional loans can now be had with down payments as low as 5 percent or even 3 percent, according to the housing finance agency. However, borrowers often are required to buy mortgage insurance, which adds to their monthly payment, and meet other criteria to qualify.
Will higher mortgage rates make it more expensive to borrow?
Mortgage rates have been rising since the presidential election, and the average is now 4.08 percent for a 30-year, fixed-rate loan, the highest it has been all year, according to Freddie Mac’s weekly mortgage market survey, released on Thursday.
Even so, rates remain historically low, said Mr. Terrazas of Zillow. In 2006, the annual average was above 6 percent. And throughout the 1980s, for instance, double-digit rates were the norm.
Where can I check the new loan limits for 2017 in my area?
Zillow has a map of the new loan limits by county on its website.
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