The official announcement won’t come for a few weeks, but we’re going to make a pretty good guess that we know what the new conforming limits might be for next year. Conforming loans are so-named because they conform to guidelines set forth by Fannie Mae or Freddie Mac. Mortgage loans adhering to conventional guidelines are typically sold to either Fannie or Freddie, which in turn provides most of the liquidity to the mortgage backed security market.
Around mid-November of each year, Fannie Mae and Freddie Mac issue conventional loan limits for the following year.
In 2008, the Federal Housing Finance Agency established procedures for Fannie Mae and Freddie Mac to use when adjusting the new conforming loan limits for the following calendar year. For 2018, the conforming loan limit for most of the country has been $453,100. Loan amounts above the conforming loan limit are called “jumbo loans”. Funds to issue jumbo loans are provided by the private market instead of Fannie Mae or Freddie Mac. Private investors tend to be more conservative than Fannie and Freddie, and as a result, jumbo loans typically have a more rigorous underwriting process.
To calculate next year’s limit, the Federal Housing Finance Agency will review the Housing Price Index (also known as HPI) and compare that number with the HPI from year ago. If there is an increase in HPI, the conforming loan balance will typically rise by a similar percentage. As of this week, the 2018 HPI is about 6.1% higher than 2017’s HPI.
That being said, with the current conforming rate at $453,100, we’re predicting the new conforming loan limit for all of 2019 will be just under $481,000.