As Southern California home prices continue to hover at record highs set during the pandemic-era buying binge, mortgage giants Fannie Mae and Freddie Mac have boosted their caps for high balance and conforming loan limits.
In high cost coastal counties, Los Angeles and Orange counties’ high balance loan limits increased to $1,149,825 from $1,089,300. San Diego County’s cap rose to $1,006,250 from $977,500 and Ventura County increased to $954,500.
In the Inland Empire and thousands of other more moderately-priced communities nationwide, the mortgage agencies’ conforming loan limit rose 5.5% to $766,550 for 2024 from the current $726,200.
A month of falling mortgage rates and these new loan limits could help bolster the region’s sales pace, which is running at its slowest in 36 years. Limited inventory and high prices have kept many would-be buyers sidelined. The median home price in Orange County was $1.05 million in October. In LA County, the median was $837,000.
This week Freddie’s 30-year rate landed at 7.22%, more than one-half point lower than the 7.79% rate just a short ago.
Any loan amount above the high balance threshold is considered a jumbo mortgage. Higher mortgage rates and fees along with tougher credit and underwriting standards are typical of jumbos. That said, as mortgage rates spiked over the last 18 months, some jumbo lenders have beaten Fannie HB rates. So, my advice is: Do your homework and check around. Don’t just assume a Fannie Mae high-balance loan will beat a jumbo mortgage.
Federal Housing Administration conforming and high balance mortgage limits tend to match the Fannie Mae-specific county limits. One big Southern California exception is the Inland Empire. Riverside County and San Bernardino County’s maximum FHA loan amount is $644,000, unchanged from 2023’s limit and significantly lower than Fannie Mae and Freddie Mac’s new loan limit.
Why do these loan caps change? The Housing and Economic Recovery Act requires the Federal Housing Finance Agency adjust its loan limits according to home price changes.
FHA is required to update its annual loan limits each year using a formula prescribed in the National Housing Act.
Shaun Shenk, a public liaison with the Department of Veterans Affairs, told me that VA loan limits are the same as the Federal Housing Finance Agency limits.
A home equity conversion mortgage, also known as a reverse mortgage, also will get a bump in 2024, rising to a maximum loan amount of $1,149,825. Borrowers can seek this amount or the appraised value, whichever is lower.
For investors who own or want to buy two- to four-unit buildings, the new conventional maximum conforming loan limits for two units is $981,500, three units is $1,186,350 and four units is $1,474,400.
In other positive Fannie Mae lending news, the institution now allows a borrower to put just 5% down or 5% equity on any owner-occupied conforming loan to buy or refinance property with two to four units. Before Nov. 18, Fannie Mae required between 15% and 25% down for two to four units. In my opinion, the higher loan caps now make buying units such as these a lot more achievable if a buyer only has to scrape up a 5% down payment.
The new high balance conventional loan limits for rental units in LA and OC are two-units $1,472,250, three-units-$1,779,525 and four-units $2,211,600.
Most lenders will use the new conventional loan limits immediately. If you are on the loan limit bubble, check with your lender. Don’t assume the increased limits will apply before Jan. 1.
Without exception, FHA and VA updated loan limits start with new case numbers issued beginning on Jan. 1.
Freddie Mac rate news
The 30-year fixed rate averaged 7.22%, 7 basis points lower than last week. The 15-year fixed rate averaged 6.56%, 11 basis points lower than last week.
The Mortgage Bankers Association reported a .3% mortgage application increase compared to last week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $374 less than this week’s payment of $5,214.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6.125%, a 15-year conventional at 6.125%, a 30-year conventional at 6.625%, a 15-year conventional high balance at 6.875% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 6.99% and a jumbo 30-year fixed at 7%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye catcher loan program of the week: A 30-year jumbo, adjustable, fixed for the first five years, rate at 6.875% with 1 point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.
