Vail Daily column: New loan limits for 2017 will help some
If you are considering buying a home next year, then there is one bright spot — you might be able to borrow a bit more than you previously could without bumping into the higher rates and qualifying requirements of a jumbo loan.
Fannie Mae and Freddie Mac, the two government entities that provide the vast majority of mortgage financing in the U.S., have always had a loan amount cap. That cap is supposed to adjust annually in accordance with the increase in housing prices.
Agencies step in
Back in about 2006, when housing prices were skyrocketing upwards, the limit was set at $417,000 for a one-family residential loan. At that time, anyone needing a loan greater than that had to go to a portfolio lender, which means the loans were held in house by the lender and funded from privately raised capital. These loans carried a higher rate and tougher qualifying terms.
When the economic collapse of 2007 came around, there was no need to increase the loan limits because the price of housing tumbled almost everywhere. However, at the same time there was a severe lack of portfolio loans available, and in areas such as Eagle County, $417,000 didn’t get a homebuyer very far. Realizing this was making a bad situation even worse, the agencies stepped in and offered a second tier of mortgage programs for loans between $417,000 and $625,500 for market areas that had a higher than average home price.
‘Agency high balance’
This second tier, known in the business as “agency high balance,” helped thousands of people locally get federally insured mortgages they would not have otherwise been able to get.
Now that the housing prices are climbing again, the agencies have increased the loan limits, slightly. The new conforming loan limit is now $424,700, a $7,700 increase. The agency high balance limit for Eagle County is now $636,150 or a $10,650 increase.
If you are buying a primary residence and the loan amount is $424,700 or below, then the minimum down payment will generally be 5 percent of the purchase price. If you need a loan between $424,700 and $636,150, then you can get by with 10 percent down. If the property is a second home, then you will need 10 percent down. If the property is an investment property you plan to rent out you, then will need at least 15 percent down, but you will pay a much lower rate on an investment purchase if you have 20-25 percent down.
If your required loan amount is greater than $636,150, then you had best plan for at least 20 percent down, and if you are looking at a loan amount in the seven digits, then plan 30-40 percent down.
Another option for high balance loans for qualifying veterans buying a primary residence is a VA loan. These loans can go 100 percent loan to value and the loan limit is $1,500,000 (but keep in mind the borrower does have to qualify income wise for any loan amount).
FHA loans, which require 3 percent down payment and are somewhat easier to qualify for, have recently emerged as an interesting choice for borrowers.
Although characterized by high mortgage insurance, the rates on FHA have not increased as fast as a conventional loan has the last month or so. In addition, the mortgage insurance charges, while high, actually are lower than private mortgage insurance for some (but not all) borrowers. Private mortgage insurance has increased dramatically recently for borrowers with marginal credit scores and high loan to values.
Getting a mortgage is like putting together a jigsaw puzzle, and every borrower needs an experienced and savvy guide to navigate and compare. I typically spend one to three hours with each client comparing options and doing calculations to be sure the client is getting the best possible fit for his particular scenario. If you talk to a mortgage lender who has a one size fits all loan program, then you might want to keep checking.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.