The Federal Housing Finance Agency (FHFA) today announced that the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2018 will increase. In Barnstable County, the maximum 1-unit loan limit follow the rest of country and rises from $422,100 to $453,100. Dukes and Nantucket counties will continue to be treated as “high-cost areas” and have higher loan limits and will both see an increase of a 1-unit conforming loan limit to $679,650.
The limit for conforming loans to meet Fannie Mae and Freddie Mac guidelines is important for purchasers because they now have more buying power in all three counties without being required to take out a jumbo loan. Jumbo loans could have higher standards and higher down payment requirements, which could be restrictive to home buyers needing a loan in that price range.
The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit of $417,000 and requires this limit to be adjusted each year to reflect the changes in the national average home price. However, after a period of declining home prices, HERA also made clear that the baseline loan limit could not rise again until the average U.S. home price returned to its pre-decline level. Until this year, the average U.S. home price remained below the level achieved in the third quarter of 2007 and thus the baseline loan limit had not been increased.
Earlier today FHFA published its third quarter 2017 House Price Index (HPI), which makes clear that average home prices are now above their level in the third quarter of 2007. The expanded-data HPI value for the third quarter of 2017 was roughly 8.7 percent above the value for the third quarter of 2007, and thus the baseline loan limit will increase by that percentage.
What does a “high-cost area” like Dukes and Nantucket counties mean?
In areas where 115 percent of the local median home value exceeds the baseline loan limit, the maximum area loan limit will be higher. HERA sets the maximum loan limit as a function of the area median home value, while setting a “ceiling” on that limit of 150 percent of the baseline loan limit.
This year, median home values generally rose in high-cost areas. Because the baseline loan limit will be higher in 2017, the new ceiling limit will also be higher. The new ceiling loan limit, which applies in areas with the most expensive homes, will be $679,650 (160 percent of $424,100) for one-unit properties in the Dukes and Nantucket counties and other “high-cost areas.”