Entries by Brandon Staples

Loan Limit Increase for Conventional Loans

Fannie Mae, Freddie Mac Loan Limit Increases to more than $510,000

In a recent news release, the Federal Housing Finance Agency announced an increase in the maximum conforming loan limit by nearly $100,000 since 2016!

Starting January 1, 2020, the conventional loan limits for Fannie Mae and Freddie Mac will be more than $510,000, an increase from $484,350 in 2019. This new update applies to one-unit properties only.

For the areas where the cost of living is higher, there will be an increase beyond this baseline limit depending on the county. Over the last year, the median home values have increased generally, and particularly in the high-cost areas. Maximum loan limits will increase in many counties. For the high-cost areas, the new ceiling loan limit for a one-unit property will rise to $765,600 or 150% of $510,400.

For areas like Alaska, Hawaii, Guam and the US Virgin Islands where a special statutory provision exists, the baseline loan limit will be $765,600 for a one-unit property.

The recent announcement by FHFA marks the fourth straight year the conforming loan limits increased. This is after an entire decade from 2006 to 2016 without announcing any increment. Back in the year 2017, the conforming loan limit was set at $424,100, and increased to $453,100 in 2018, before the 2019 limit was set at $484,350 and now the loan limits will top $510,000 in 2020.

What does this mean for the mortgage borrowers?

First, the FHFA appreciates the rising home prices in all the counties in the US. With the increment in the conforming loan limits, (for the loans that are insured by Fannie Mae and Freddie Mac), more homebuyers will have access to safe and more affordable mortgages. This is according to the California Association of Realtors, who stated the latest news release by FHFA. This conforming loan limits increase allows the cost of mortgages will remain manageable for borrowers who qualify. Further, it is expected that housing affordability will improve across the counties in the US, including the High-cost Areas.

The National Association of Realtors® in conjunction with regional Realtors® have been advocating for higher conforming loan limits. The recent increment is an indication that the country is headed in the right direction, trying to tackle the rising cost of housing. Therefore, the cities that have been experiencing high median home prices will benefit from the new increment.

Consider that the conforming loan limit is a major determinant of the maximum mortgage size that the Government-Sponsored Enterprises (Fannie Mae and Freddie Mac) can guarantee. This is unlike the none-Conforming and Jumbo Loans that come with strict and tighter underwriting standards.

Sometimes the non-conforming loans carry higher mortgage interest compared to Fannie Mae and Freddie Mac loans. This increases the monthly mortgage repayments making it more difficult for families to afford the mortgage.

How Does the Conforming Loan Limit work?

The conforming loan limit is set as per the permanent formula established under the Housing and Economic Recovery ACT of 2008. The conforming loan limit is also designated by the county, with a majority of the counties assigned baseline conforming loan limit.

Note that there can be variations on the conforming loan limit, as per the regional economic differences. This applies in the case of areas where the 115% of the local median home value exceeds the baseline conforming loan limit.

For those areas, the maximum loan limit is set higher. This is following the Housing and Economic Recovery Act that sets the maximum loan limit for those areas.

Moreover, some special statutory provisions within HERA, establish a different loan limit calculation for four counties, namely Alaska, Hawaii, Guam, and the US Virgin Islands. This is the reason why in 2020 as well as previous years, the conforming loan limits for these areas tend to be notably higher compared to the other areas. This is because; HERA designates these areas as High-Cost Areas.

The Baseline National Conforming Loan Limit

According to the Housing and Economic Recovery ACT of 2008, the Baseline Loan Limit should be adjusted annually. This is under the National Average Home Price. Therefore, HERA specifies that FHFA should establish and maintain a formula for tracking the National Average Home Price.

Therefore, in determining the 2020 maximum conforming loan limit, the FHFA used the seasonally expanded-Data HPI. As per the index used by FHFA, the increase was calculated as 5.378 percent.

THE ULTIMATE GUIDE TO BUYING A HOME WITH AN FHA LOAN!

If you are looking for a home mortgage with a low down payment, an FHA loan is a great option. The FHA has been helping buyers who don’t have the traditional 20% down payment saved, qualify for a mortgage. FHA borrowers pay mortgage insurance premiums until the loan is fully repaid. This is the compromise a borrower makes to get into a home without having to put a lot of money down. The mortgage insurance is the FHA’s premium to finance the home. The FHA mortgage insurance will last for the life of the loan. This is probably the biggest downside of the FHA loan. An FHA home mortgage is a loan insured by the Federal Housing Administration and the premium payments allow the loan to be guaranteed by the FHA-approved lender. This means that if a borrower fails to pay their mortgage and defaults on the home, the St. George mortgage lenders will be compensated by the FHA. 

The FHA loan comes with various advantages. In this post, we guide you through the important aspects of this type of home loan before applying for an FHA loan.

1. FHA LOANS ACCEPT LOWER CREDIT SCORES AND A SMALLER DOWN PAYMENT

You can qualify for an FHA loan with a lower credit score compared to the score requirements for a conventional home loan. For borrowers who are still struggling to save for that huge down payment that a conventional loan requires, an FHA loan is a better option. This is considering that the credit score also takes into consideration the saving habits of the individual. Borrowers can qualify for a loan even with a credit score of 580. This is opposed to the conventional loans where the credit score requirement is 620 or higher.

The FHA loan qualification schedule is more forgiving of borrowers with past bankruptcies, foreclosure or short sales. There is a shorter waiting period after these credit delinquencies to qualify for an FHA loan.

Down payment requirements for an FHA loan is lower compared to conventional loans. A borrower can qualify for an FHA mortgage with as little as 3.5% down. In some cases, borrowers with lower credit scores, you may need a larger down payment (typically around 10%) to qualify. 

2. FHA MORTGAGE INTEREST RATES ARE LOWER THAN MORTGAGES ON A CONFORMING CONVENTIONAL MORTGAGE

The mortgage interest rates on FHA loans are typically lower as borrowers with a credit score of 660 can qualify for similar interest rates as conventional borrowers with a score of 740. An FHA loan is considered a better option for those borrowers. Another reason why FHA loan rates could is lower is that Fannie Mae and Freddie Mac added loan-level price adjustments and guarantee fees to their loans that are passed onto the borrowers. 

3. FHA LOANS COME WITH EASY STREAMLINED REFINANCING

If you are planning move forward with a Utah FHA refinancing option in the future, you will enjoy more benefits. This is because FHA loans provide a streamlined refinancing program, that minimizes the paperwork and the hassle associated with refinancing a conventional loan. St. George mortgage lenders can qualify an FHA refinancing request before ordering a property appraisal. In the end, this saves you money especially if the mortgage rates drop at the time of applying for the Utah FHA refinance. Borrowers under the FHA loan program have experienced an easier refinancing process with less hassle compared to a conventional loan refinance.

4. FHA LOANS ALLOW DOWN PAYMENT GIFTING

Down payment gifting is when your family member or an approved donor gifts you money to help cover part of your down payment. With an FHA home mortgage, you can have your entire down payment gifted to you! With conventional loans, down payment gifting is only acceptable to some of the time. This is a major advantage for borrowers opting for an FHA home loan but don’t have the entire down payment saved away. This option must be declared by obtaining a letter from the donor.

5. FHA LOANS ALLOW THE HOME BUYER TO ASSUME THE REMAINING BALANCE

FHA loans can be assumed by a homebuyer, which means that if you are selling the house down the road, it’s possible that the person who buys it can take over the FHA loan. However, the requirements for the loan have to be met by the person purchasing the property. The benefit and features of the loan are also passed to the next homebuyer because if the seller is enjoying a low interest on the mortgage, the lower interest rate is paid. The buyer will have an advantage when reselling the property. All conventional mortgages are not assumable.

6. THE FHA LOAN IS GENERALLY EASIER TO QUALIFY FOR

FHA loans have fewer requirements compared to a conventional loan. In terms of credit score, debt ratio, and down payments, an FHA is a more flexible option. If you are looking for a simpler route when it comes to financing a loan, you should take a look at an FHA mortgage, which has easier qualification requirements.

In closing, many finance sector experts expect that the future of the FHA mortgage loans is bright. You can expect that FHA loans will become more affordable over time. 

What Does it Mean to Refinance Your Mortgage?

Should I Refinance?

When homeowners refinance, it gives them access to a new mortgage loan replacing its existing one. Homeowners can customize the details of a new mortgage loan including the loan’s mortgage rate, loan length in years and the amount borrowed. So, what makes a refinance attractive? Refinancing can be taken advantage of to reduce the monthly mortgage payment, withdraw cash for home improvement projects, cancel mortgage insurance, among other helpful uses.

Here, we will break down the different types of refinance mortgages.

Rate and Term Refinance

This type of refinancing changes the interest rate and/or the length of the term and does not change the amount of principal. Perhaps the original mortgage terms made sense for you when you initially agreed to it but as time goes on, circumstances may change. For example, if you’re looking to trade your 7-year adjustable rate mortgage for long-term stability, doing a rate and term refinance into a 30-year fixed rate loan may be better for you. On the other hand, if you’re looking to pay off your mortgage sooner than later, you could also refinance into a shorter loan term.

What if the interest rate on your mortgage is significantly higher than current interest rates? You can refinance to get a better rate and help you save money on your mortgage monthly payments.

Cash-out Refinance

cash-out refinance is a refinance option where the new mortgage loan is for a larger amount than the current mortgage loan and you receive the difference between the two loans in cash. One of the most common reasons why homeowners do a cash-out refinance is to transform the equity (ownership) that’s been built up in their home into cash. This cash can be spent on home improvementspay off student loans, debt consolidation or other important financial needs.

This type of refinancing has slightly higher interest rates due to a higher loan amount. The cash-out amount limits to 80-90% of your home’s equity. For example, if your home has a value of $200,000 but your remaining mortgage balance is $100,000, then the equity in your home is $100,000. If you are needing $50,000 for a home improvement project or using it for other financial priorities, you can choose to refinance your loan for $150.000 and receive $50,000 in cash at closing.

HELOC (Home Equity Line of Credit) Refinance

This particular type of refinance is a loan that’s set up as a line of credit for some maximum draw instead of a fixed dollar amount. It is a revolving line of credit that uses your house as collateral. The bank gives you an amount that you may borrow and may access at any point in time. There are two main ways of tapping into this line of credit; writing a check or using a credit card that’s connected to the account.

If you’re a homeowner that has built some equity in your home and need some additional cash for helping your child pay for college, renovating your home or buying a car, borrowing money this way may offer low interest rates and improve financial flexibility.

Ready for the first step to refinancing your mortgage? Here at Sun American Mortgage we want to help you find the best possible solution and save you money at the same time. Call us to talk about some of your options, or start with our simple online application.  480-832-4343

References:

https://www.nerdwallet.com/blog/mortgages/refinance-cash-out/

https://www.mtgprofessor.com/A%20-%20Second%20Mortgages/what_is_a_heloc.htm
 
August 14, 2018  by Cathy Ly 

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