As expected, the Federal Housing Finance Agency, or FHFA, increased the conforming loan limit for 2019.
The new conforming loan limit for 2019 is set at $484,350 for a single family home. We wrote here how FHFA sets these limits as the Home Price Index, or HPI is reviewed at the end of the third quarter of each year and compares that number with the HPI from the same time last year. If there is an increase, the conforming loan limit is adjusted accordingly.
Because the HPI jumped by 6.9 percent from October 2017 to October 2018, the limit is raised by 6.9 percent. If there is no change or the HPI actually falls there will be no change in the conforming loan limit. In areas where the median home value exceeds the baseline limit by 115 percent or greater for the area, the maximum limit can be as high as $726,525. Such areas are deemed “high cost areas” but are still considered conforming because the loans that finance these properties conform to guidelines set forth by Fannie Mae or Freddie Mac.
Conforming loans make up more than two-thirds of the entire mortgage market and thus carry the most competitive rates compared to higher balance or jumbo mortgage loans. When lenders underwrite a loan to conforming standards the loan is then eligible for sale in the secondary market which in turn replenishes a mortgage company’s credit line, allowing it to make even more home loans.
Government-backed mortgages are also influenced by this increase. VA loans will match the new conforming limits in 2019. FHA loans are calculated at 65 percent of the prevailing conforming limit. In 2019, the FHA loan limit will be $324,827 in most parts of the country. In high cost areas, the new limit will be 150 percent of the conforming limit.