As is usually the case with the arrival of a new year, there are changes happening in the mortgage industry. These include changes in maximum loan amounts, as well as to certain underwriting criteria that affect borrower qualification.
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On balance, all of these changes are positive for 2018. They’ll enable higher loan amounts, and increased flexibility with regard to certain debts.
New Mortgage Loan Limits for 2018
The Federal Housing Finance Agency (FHFA) recently announced an increase in base maximum mortgage loan limits for 2018.
The new maximum is $453,100, up substantially from $424,100 in 2017. This reflects an increase of 6.8%, which is the amount that the average home price in the US increased between the third quarter of 2016 and the third quarter of 2017.
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The loan limit is higher for multifamily properties. Limits for 2 to 4 family homes are as follows:
- Two family: $580,150
- Three family: $701,250
- Four family: $871,450
Different limits also apply in high-cost areas. These are defined as areas in which 115% of the local median home value exceeds the baseline conforming loan limit. That increases the maximum mortgage limit to 150% of the baseline conforming limit of $453,100. For 2018, the mortgage limit for high-cost areas will be $679,650.
The loan limits are different in Alaska, Hawaii, Guam and the US Virgin Islands. In those areas, $679,650 is considered the baseline for conforming loans.
In these regions, multifamily property maximum loan limits are as follows:
- Two family: $870,225
- Three family: $1,051,875
- Four family: $1,307,175
Alaska, Hawaii, Guam and the US Virgin Islands aren’t the only regions with higher limits. Certain states that have high-cost markets also have higher loan limits. This includes California, Colorado, Connecticut, Washington DC, Florida, Georgia, Idaho, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Utah, Virginia, Washington, West Virginia and Wyoming.
These represent the “conforming loan limits” that apply to mortgages funded by Fannie Mae and Freddie Mac.
Maximum mortgage limits are set for each county in the US. Check the maximum in your county to find out what that limit is.
FHA and VA Loan Limits for 2018
FHA loan vary by county, and range between a low of $294,515 (up from $275,665 and 2017) and a high of $679,650 (up from $636,150 in 2017). The actual maximum limit is determined by the county in which the property being purchased or refinanced is located.
You can determine the specific limit in your county on the FHA Mortgage Limits page.
VA loan limits are identical to those for Fannie Mae and Freddie Mac for 2018.
Changes in Underwriting Guidelines for 2018
For 2018, Freddie Mac is rolling out the following changes:
Student Loans. Where a loan has entered repayment, and no set payment amount is indicated, lenders will use 0.5% of the original loan balance as the monthly payment. If the loan is in deferment, and no payment is indicated, 1% of the original loan balance will be used to calculate the monthly payment.
A student loan can be excluded if the borrower is in loan forgiveness, cancellation, discharge or employment contingent repayment, and the borrower meets all of the requirements for said program.
Loan payments made by third parties. A debt payment can be excluded from the borrower’s debts if it can be shown that someone other than the borrower has been making the payments satisfactorily for at least the past 12 months. The third party is not required to be a cosigner on the loan being paid.
Both changes will be favorable for borrowers since they permit the exclusion of debts that meet the above criteria.
For 2018, Fannie Mae has made the following changes:
Student loans. Fannie Mae is following Freddie Mac on these loans. However, they will use the actual payment on income-driven repayment plans, which are typically very low. In the past, they’ve required the use of 1% of the outstanding indebtedness.
Fannie Mae will also disregard student loan debt if it has been paid by a third party for at least the past 12 months.
HARP has been replaced. The Home Affordable Refinancing Program (HARP) was established in 2009 to allow underwater homeowners to refinance their mortgages. The replacement program has relaxed guidelines. For example, there is no limit to the number of times the program can be used. There are also no loan-to-value limits, which means that in theory at least, you can refinance a mortgage that’s twice the value of your home.
To qualify, you need at least 12 consecutive on-time payments and have no late payments on other credit lines within the last six months, and no more than one 30 day late payment in the past year.
Like the Freddie Mac changes, the Fannie Mae changes are very consumer friendly and will enable more people to qualify.
On balance, both the increases in loan limits and the changes in underwriting guidelines are positive developments for homebuyers and anyone who wants to refinance. You’ll be able to borrow more money and get more flexible consideration with certain debt payments.