Borrowers can apply for larger mortgages this year
- In 2023, the Federal Housing Finance Agency increased its conforming loan limit values to mortgages.
- The agency raised the conforming loan amount in the majority of the US from $647 200 to $726 200.
- While the increase will allow more borrowers to purchase a home, it could also lead to increased cost-burdening.
The US home buying frenzy during the pandemic — which saw home prices rise at a steep paceBuyers and sellers going to great lengths to get a home under contract — fizzled out over the summer as a mix of high home prices and borrowing costs reduced purchasing power for many prospective buyers. The Federal Housing Finance Agency has updated its conforming loan limit values in 2023 for Fannie Mae mortgages. This will likely change the situation for many homebuyers.
Under the The Housing and Economic Recovery Act, the FHFA is required to raise their baseline ceiling loan limit — or CLL value — each year to reflect adjustments to the average US home price. The agency increased the CLL value of one-unit properties by 12 percent due to the rapid rise in home prices over the past year. It went from $647,200 up to $726,200 across most of the United States. The loan limit ceiling has been increased to $1,089,000.
These increases could open up opportunities to Americans who otherwise would not qualify for mortgage financing — or would have had to receive a jumbo loan — due to the nation’s still-yet-high home prices.
First-time homebuyers will be eligible for conforming loans up to a maximum of $200,000 under the new limits. can qualify for as much as 97%Non-first-time buyers can get up to 95% in conventional mortgage loan financing. First-time buyers would need to have enough cash to cover 3% at closing. However, buyers who pay less at closing will be subject to higher monthly mortgage payments.
It will open up conventional mortgages to more buyers and it will likely draw more Americans back into the frothy realty market, especially those who are unable to afford the substantial cash needed to make a down payment.
These changes may be encouraging for some, but Melissa Cohn, regional vice president at William Raveis mortgage, warns that they could cause problems for borrowers who want to stretch their budgets to get the best home for them.
“The bank will help to stretch, but how far are you willing to stretch and is it comfortable?” Insider spoke with her. “What Fannie and Freddie consider you can afford versus what you can live comfortably are two different things.”
Higher loan limits offer buyers more options, but they also expose borrowers to the risk of putting their finances at risk by making them too cautious and becoming over-leveraged. All of this boils down to the fact that Americans are more likely to be cost-burdened or house-poor due to economic headwinds like rising inflation and higher interest rates. Higher property taxes and rising home costs are just a few of the possible consequences. recession looming in 2023 — which could trigger mass job losses and — borrowers who exceed their budgets to qualify for a home loan may find themselves in greater financial trouble.
Cohn stated, “As a homeowner, you need to be smart about how much money you spend on a house.” You need to ensure that you have money for the rest of your lives, not just your mortgage payment.
For first-time buyers, higher loan limits can be a double-edged sword
Cohn’s thinking is not unique. Jacob Channel, senior economist at LendingTree data mortgage marketplace, states that although raising conforming loan limits doesn’t necessarily make it a bad idea, the economy is on rocky ground, making it more risky for some borrowers.
Channel said to Insider that “This year, we might enter into recession.” Channel stated that even if we don’t physically enter it, the economy would likely weaken and the job market would probably get worse. It goes to show that with the economy on shaky grounds — even if some things are improving — there’s always a chance that something that was once affordable becomes unaffordable.”
Many economists and financial specialists have done this. calledFor a possible recession in 2023. Already, there have been tens. thousands of layoffsIn the tech industry and large financial institutions projectThere will be many other events this year.
While affordability will largely depend on each individual’s financial situation, Channel says that first time home buyers — who typically need more financial assistance on a downpayment — are especially vulnerable in biting off more than they can chew.
He said that a certain demographic could face challenges, such as a first-time buyer who doesn’t realize that just because the conforming loan limit exceeds $700,000. It doesn’t mean that they have to search for a house that is right up against that limit.
According to him, borrowers — first time and repeat buyers — need to be diligent about assessing their finances and to be honest with themselves about what they can afford. He added that it was one of those things that is “truly kind of common sense”. “The more money that you borrow, and the more you have to repay, the more likely it is that you will default.
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