Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with balances below a specific amount which is known as the conforming loan limit.
The Housing and Economic Recovery Act (HERA) requires the The Federal Housing Finance Agency (FHFA) to adjust the baseline conforming loan limit annually to reflect any changes in U.S. home pricing.
Last week, FHFA announced that the conforming loan limit will increase next year in most of the U.S. including Michigan. Because of the rising home prices, the new maximum conforming loan limit for single-family homes will increase from $453,100 to $484,350.
High cost areas will have a different conforming loan limit, referred to as the ceiling conforming loan limit, which will increase to $726,525 in 2019.
The conforming loan limit is announced every November but it does not necessarily change every year. However, 2019 will be the third year in a row that we have seen an increase. The FHFA’s House Price Index has indicated an increase of 6.9% in home prices over the last year.
What is a Conforming Loan?
The term conforming loan was introduced in 1970 when Fannie Mae and Freddie Mac began to standardize loan documents and processes.
About half of all conventional loans are called “conforming” loans because they adhere to guidelines established by Fannie Mae and Freddie Mac.
Since conforming mortgages adhere to these guidelines, such as credit and debt-to-income ratio, they are considered lower risk and are more easily sold to investors. As a result, borrowers will often secure a conforming loan at a lower interest rate.
Loans that do not conform to the rules established by Fannie Mae and Freddie Mac or exceed the loan limit are non-conforming loans. In this case borrowers will need to apply for a jumbo loan, portfolio loan or seek out a government program such as FHA, VA or USDA.
About Michigan Mortgage Lender, Julie Krumholz
Julie Krumholz is a Michigan mortgage expert with over 30 years of experience in conventional loans, VA loans, MSHDA loans, RD Loans, portfolio loans and more. If you are ready to get pre-approved for a mortgage or have any questions about mortgage lending in Michigan, contact Julie from Superior National Bank.
