By Robyn A. Friedman
City & Shore Magazine – The Luxury Issue
Thinking of buying a luxury home? If you’re planning to finance it, then you might be interested in some news released in November by the Federal Housing Finance Agency (FHFA), the folks responsible for regulating Fannie Mae and Freddie Mac.
On Nov. 24, FHFA announced that the maximum conforming loan limits for mortgages purchased on the secondary market by Fannie and Freddie would increase in 2021. In most of the United States, the maximum conforming loan limit for a single-family home is now $548,250, up from $510,400 in 2020.
That means that, in South Florida, homebuyers can borrow up to $548,250 without having to apply for a jumbo mortgage – a loan that exceeds the conforming loan limit. So, for example, if you’re purchasing a $650,000 home and put down 20 percent, you’ll no longer need a jumbo mortgage to finance the remaining $520,000.
Why does this matter? Because, nowadays, mortgage industry experts say it’s easier to qualify for a conforming loan than for a jumbo one.
“There was a sizable increase this year in the maximum loan amount allowed for a mortgage to be conventional before it needs to be a jumbo loan,” says Bill Banfield, executive vice president of capital markets for Detroit-based Rocket Mortgage. “This is great news for homebuyers because it offers more flexibility when they look to purchase their next home. While Rocket Mortgage and many other lenders offer jumbo loans, conventional mortgages usually have more relaxed requirements in terms of down payment, income and credit score needed to qualify.”
Several years ago, lenders competed for the business of jumbo mortgage applicants. Because of their higher incomes and, often, better credit scores, they were deemed to be less risky loans. But, today, “jumbo loans are extremely tight to get,” says Steve Chaney, a loan originator with U.S. Mortgage of Florida in Delray Beach. “The market has shrunken so much because of risk factors, and it’s much more difficult to get an approved loan on a jumbo than on a conforming loan because the underwriting standards are stricter.”
Although the limit for a conventional loan has been raised to $548,250 in most of the nation, in certain metros with more pricey housing markets, the conforming loan limits are even higher – $822,375 in San Francisco or Honolulu, for example, or $776,250 in Seattle. That’s important to keep in mind if you’re looking to buy in a more expensive housing market, including New York City.
For those who do apply for a jumbo loan, Chaney has some advice. First, check your credit score. If it’s slightly below what lenders require for a jumbo loan, Chaney said it might be possible to raise it by paying down some credit cards or paying off a car loan. Also, consider applying at a bank with which you already have a relationship. Since some financial institutions that originate jumbo mortgages are so-called “portfolio lenders” that hold on to their loans rather than sell them on the secondary market, they might be more flexible on the underwriting guidelines, especially if you have significant assets on deposit.