At the end of each year Freddie Mac and Fannie Mae and HUD announce the maximum loan amounts that they will accept from lenders for the next calendar year. These loan limits are referred to as "conforming" loan limits and they carry the lowest mortgage rates available. Traditionally, these limits have been based on the nation's median home price. When the home prices go up from one year to the next, the conforming loan limit goes up and vice versa. When I started originating loans in 1986, the conforming loan limit was set at $133,250. In other words, if a loan was to qualify for the best rates in 1986, it had to be under $133,250.
Home prices more or less increased steadily from 1986 to 2006 and so did the conforming loan limit, which had increased to $417,000 by 2006, where it remained for 2007. Then in February of 2008, to help out our struggling economy, despite the drop in the median home prices, the conforming loan limit was increased from $417,000 to $729,750. Loans above that were called jumbo loans and carried interest rates nearly one percent higher than conforming loans. At the same time, the maximum loan limit for FHA loans was also increased to $729,750, which nearly doubled the previous limit.
Refinancing homeowners and homebuyers have benefited from these higher loan limits since 2008 by offering lower rates for loan amounts up to $729,750. However, last year Freddie Mac and Fannie Mae announced that the maximum loan limit would drop to $625,500 for all loans closed after September 30, 2011. Since the maximum loan limit is tied to the median income in each area, some areas of the country experience lower conforming loan limits. Fortunately, Santa Cruz County qualifies for the maximum loan of $625,500 and $729,750 for FHA loans because we are considered a high priced area. It should be noted that exceptions are made for Hawaii, Alaska, Guam and the Virgin Islands, where the maximum loan amounts are a full 50 percent higher than the rest of the country.
Just this month Freddie Mac, Fannie Mae and HUD announced that the current loan limits will remain unchanged for 2013. That is, Freddie and Fannie will retain the current two tiered system: best rates are for loan amounts up to $417,000 and slightly higher rates and more restrictive underwriting will remain for loan amounts between $417,000 and $625,500. The $729,750 limit will continue another year for FHA loans.
Freddie Mac and Fannie Mae also provide financing for properties with up to four units. The current loan limit for a duplex is $533,850, triplex limit is $645,300 and the four-plex limit is $801,950. While FHA loans are only for owner-occupied homes, Freddie and Fannie will finance owner-occupied, vacation or investment properties. Rates for the non-owner-occupied homes typically carry rates about one half of one percent higher.
Local mortgage consultant Peter Boutell has been writing a weekly column for the Sentinel since 1995. Send questions to 'Lending a Hand,' 1535 Seabright Ave., Santa Cruz, CA 95062, fax them to 425-1044 or email them to firstname.lastname@example.org. Archived columns are available at www.peterboutell.com.