A mortgage is most likely the largest investment you’ll ever make. Approximately 63% of Americans have already committed to the “good debt” of homeownership and a change is on its way that may open the door, at least a bit, for those holding out for the home of their dreams. The Federal Housing Financing Agency (FHFA) just announced that the 2019 conforming loan limit (the threshold over which a loan becomes “jumbo”) will be increased by over $30,000 for most U.S. counties. In dollar terms, the new limit will be $484,350 for one-unit dwellings — a bump of 6.9% from 2018’s limit of $453,100.
Jumbo loans are home loans that exceed the loan amounts set by the FHFA, and as a result, are not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. They’re considered riskier investments, are designed to finance luxury properties, and they come with unique underwriting requirements and tax implications.
According to Forbes, the increase in mortgage borrowing limits is directly related to rising housing prices seen throughout the country. The FHFA’s House Price Index showed an increase of 6.9%, so loan limits rose accordingly. This is only the third time in 14 years they have raised the threshold, each increase having taken place in the previous three years.
However, this doesn’t mean that every Tom, Dick, and Harry who wants to own a sprawling $500,000 home should start applying! The threshold may have been raised, but even a $480,000 loan should only be sought after by what is sometimes referred to as “HENRYs” – “high earners, not rich yet.” Mortgages come with a significant amount of risk, particularly to your credit score, and Investopedia says jumbo mortgages are most appropriate for people who make between $250,000 and $500,000 a year.
The best way to approach buying a home, or applying for a home loan, is to seek advice. Financial advisers can take an unbiased look at your current financial situation to determine if this loan limit increase will benefit you.
Contact the mortgage lending experts at First Bank of the Palm Beaches to select the financing option that is best for you.