The housing and finance industry in Alpharetta, GA and beyond anxiously awaited the Federal Housing Finance Agency’s announced conforming loan limits for 2019. The new conforming loan limit for 2019 is $484,350. FHFA established an official formula when setting the conforming loan limits for the following year. The calculation compares the national home price index, or HPI, released in October each year and compares that figure with the HPI from October of the previous year. If there is an increase, the conforming loan limit will be adjusted accordingly. If there is no change or the median home value actually declines, there is no adjustment to the conforming limit. Any changes are announced in late November. Last month, we took the year-to-date valuations and predicted the new limits would be closer to $481,000 using a 6.1 percent HPI bump. However, the increase was a bit larger than expected.
The Housing and Economic Recovery Act (HERA) of 2008 mandates the limits which Fannie Mae and Freddie Mac adhere to. Such loans are by far the most common choice when consumers buy and finance a home. Nearly two out of three homebuyers finance a single family home with a Fannie or Freddie loan. The calculation is relatively simple by following the increase in HPI and adjusting the new limits by the same amount. From October 2017 to October 2018, the HPI rose by 6.9 percent, a respectable jump. Therefore, the new conforming loan limits for a single family home will also be increased by 6.9 percent from $453,100 in 2018 to the new $484,350 level.
In so-called “high cost” areas where property values are much higher compared to the rest of the country, the high-cost conforming loan limit jumps to $726,525 which is 150 percent of the baseline conforming limit. A high cost area is where the local median home value exceeds 115 percent of the baseline limit. The 2019 increase was expected by most housing and finance authorities, the only question was how much the limit would rise.
The increase in the conforming limit allows homebuyers to purchase a home with some of the most competitive financing options in the industry. Loan amounts that are greater than the conforming limits are referred to as “jumbo” loans and typically will carry slightly higher rates and larger down payment requirements than conforming loans.