We all know how home prices in the area have been climbing and in 2016 it was no different for Travis County and surrounding areas. As for 2017 we saw the first conforming loan limit increase in a decade. Historically, conforming loan limits adjust each year as average home prices nationwide rise yet prior to 2017 the last time the conforming limit was increased was back in 2005, when the maximum amount was changed from $359,650 to $417,000. For 2017, the new conforming loan limit is $424,100. Here are the five things you need to know about the new limits.
1: Loan limits for the next year are adjusted last year. The Housing and Economic Recovery Act of 2008 set as statute the conforming loan limit could not be lower than the baseline limit set in 2006 of $417,000. The new limits consider the national average home price at the end of the third quarter each year and adjust accordingly. In Q3 2016, the national average was 1.7 percent higher than the level set in 2007. $424,100 is 1.7 percent higher than $417,000.
2: Conforming rates are lower than Jumbo loans. As home values increase in our area the increase in the maximum conforming loan limit is a welcome change. Conforming loans have slightly lower interest rates compared to jumbo loans. Jumbo loans are those above the conforming limit.
3: FHA loan limits are based upon the conforming limit. FHA loan limits can vary by county and in Travis, Hays and Williamson Counties the FHA loan limit is $361,100. The FHA does not establish the loan limit each year but moves along with the current conforming loan limits established by Fannie Mae and Freddie Mac. The FHA loan limit is set each year at 115% of the median home price in what is known as the Metropolitan Statistical Area, or MSA. Our MSA is the Austin-Round Rock metropolitan area.
4: Maximum loan limits and your prequalified amount can be different. The maximum conforming loan limit is not the amount someone can qualify for. The maximum loan amount is based upon the borrower’s monthly income, current credit obligations and prevailing interest rates.
5: VA loan limits match conforming ones. If you’re VA eligible, the maximum VA loan limit in our area is $424,100, matching the new conforming loan limits. Note the VA doesn’t set the maximum loan limit but does set the maximum guaranty.