Jumbo Mortgage Limits Altered

HOUSTON – (By Dale King, Realty News Report) – The federal agency that oversees components of secondary mortgage markets recently revised a regulation affecting home loans, a change that adds 2 million for-sale residences to the pool of dwellings that can be purchased through conventional borrowing without a jumbo mortgage.

The Federal Housing Finance Agency (FHFA) has increased the price limit that makes homes eligible for conventional loans, expanding the number of available residences that buyers can purchase without having to upgrade to a more expensive and complex jumbo loan.

This also cuts many potential home buyers loose from the need to file for a jumbo loan, a funding system that requires a higher credit score and bigger down payments than the norm, among other red tape entanglements, reports Zillow Home Loans.

“The addition of 2 million homes that now qualify for conforming loan options across the county is welcome news for home buyers entering a shopping season with fewer homes on the market,” said Nicole Bachaud, Zillow Home Loans senior economist.

“Home price appreciation has slowed significantly,” she added. “And this means homes nearing jumbo loan territory will stay eligible for conforming loans longer than we have seen in the last few years.”

The change is due to the FHFA’s recent increase of conforming loan limits. For a majority of the country, the conforming loan requirement increased by $79,000 — going from $647,200 in 2022 to a baseline of $726,200 in 2023, said Zillow Home Loans.

Conforming Home Loans of $1 million

In addition, in the most expensive parts of the county (103 counties), the conforming loan limit was raised to $1,089,300, topping the $1 million mark for the first time. These counties are largely concentrated in the nation’s most expensive metro areas, along the coasts and in the Mountain West.

These updates to loan limits come within a changing housing market. While home price appreciation has slowed, actual prices are still significantly higher than a year ago, said Zillow Home Loans.

Affordability challenges weighed heavily on home sales in the second half of 2022, the firm added. The number of listings that went pending in November fell by 16.5 percent from October and are down 38 percent compared to last November.

A conforming loan is the largest amount a mortgage company can provide to a borrower and still sell it conventionally to the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).

Compared to conforming loans, said Zillow, jumbo loans typically require a higher credit score — 700 is the minimum that many lenders accept for a jumbo loan versus 620 needed for most conforming loans.

Bigger down payments are also the norm with a jumbo loan. Jumbos often require 20 percent down, although some demand even higher money-down payments. Some jumbo loans will also require proof of larger cash reserves than conventional loans — up to 12 months’ worth.

A Big Screen TV or a Jumbo Loan?

A recent survey from Zillow Home Loans says many prospective home buyers spend nearly as much time researching their next TV purchase as they do their mortgage lender. Home buyers looking to purchase in the next year can take steps now to research and prepare for the mortgage process, including:

Understanding their credit profile: Credit scores are key to getting approved for a mortgage, but for many home buyers, understanding credit is complex.
Improving their credit score: Once buyers familiarize themselves with what’s in their credit report, they can take steps to pay down existing debts, pay bills on time, review their credit report and dispute possible errors.
Avoiding closing accounts: Don’t close an account to remove it from your report. Those accounts aren’t automatically removed and will continue to show up on your report.
Holding off on large purchases that need to be financed: Wait to make purchases that need to be financed, such as a car, until after you close on a home. This type of purchase will impact your debt-to-income ratio, which will negatively impact the amount of home loan you qualify for.
Determining what affordability looks like: Once buyers have a good understanding of their credit report and are satisfied with their credit score, it’s time to understand how much home they can afford.

“Buyers should educate themselves about loan limits in their area,” said Bachaud, “and speak with qualified loan officers so they are making informed choices about their home purchase and the best loan option for their personal financial situation.”

Zillow Home Loans is an affiliate of Zillow Group, a major real estate online marketplace.

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