The Change That Could Help You Score a Bigger Mortgage in 2017

FHA loan limits are going up in 2017.

The Federal Housing Finance Agency recently announced that loan limits for 2017 are going up. In many parts of the country, loan amount sizes are rising. In particular, the conforming loan limit has risen from $417,000 to $424,100. (Conforming loans, which are not to be confused with conventional loans, are mortgage loans that adhere to guidelines set by Freddie Mac and Fannie Mae.)

While these mortgage loans’ rise may not seem significant, they’re particularly important because loans that exceed $424,100 are considered to be conforming high balance loans, which means higher pricing and higher fees, as they’re greater than the conforming loan limit. This change by the Federal Housing Finance Agency also means that the maximum county conforming loan limits will be increased, making it easier to get a bigger mortgage or to buy a house with less than 20% down, for example.

Here’s an illustration: Looking at Sonoma County, the old maximum county loan limit was $554,300. In 2017, that number will change to $595,700. This represents an additional $41,400 that does not need to be brought to the table anymore. That money can be financed instead. Essentially, the loan limit increase allows you to borrow more money and still stay within conforming loan limits. The reason this is important is because when the loan exceeds the maximum county limit, it automatically enters a more restrictive lending landscape. Such requirements for homeowners include lower debt-to-income ratios, a stellar credit history and a more solid financial picture. (Not sure where your finances stand? You can view two of your free credit scores, updated every 14 days, by visiting Credit.com.)

These loan limits allow more people to borrow more money without having to put more money down in their transaction. Homeowners can refinance bigger loan sizes and still stay within the conforming loan limits. The change will also help homeowners who were just a hair over $417,000 stay within conforming limits. And it comes at a critical time when mortgage rates have etched up in recent weeks, with the 30-year fixed rate mortgage now hovering just over 4.0%.

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Markets Having Best Weathered Recession Dense with FHA Mortgages

FHA

It may seem obvious why some areas were hit harder than others when the housing bubble burst. Many markets were more saturated with subprime mortgages–particularly those in the Sunbelt- than other markets. But there is another layer to this onion you may not have peeled back yet; the role of the Federal Housing Authority (FHA) loan.

More FHA Mortgages, Less Foreclosure

Data is now suggesting government-sponsored mortgage insurance programs mitigated the effects of- and stimulated the recovery from- the great recession. In counties with high participation ratios in FHA loan programs were lower unemployment rates, higher home sales, higher home prices, lower mortgage delinquency rates and less foreclosure activity then in counties with less participation. These figures were applicable both soon after the 2009 peak of the financial crisis and six years later in 2014.

Unemployment rates had increased by 26% by the end of 2008 in counties that had low FHA loan participation. This compares to a mere 4% increase in unemployment rates in counties that had high FHA participation. And a year later, unemployment rates had increased by 106 and 58%, respectively.

FHA & Unemployment Rates

Recession recovery in counties with lower government involvement in mortgages were also sluggish. By the end of 2012, when unemployment rates had fallen, they still remained 30% higher in low FHA-share counties than in high FHA-share counties.

The discrepancies witnessed between counties with more FHA loans and those with fewer FHA loans the Federal Reserve credits to a few different components. These include lower government liquidity premiums, lower government credit-risk premiums and looser government mortgage-underwriting standards. The combination of these components, the Fed theorizes, may yield higher private-sector economic activity after a financial crisis.

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