Peter Boutell, lend a hand
Every year around Thanksgiving, Freddie Mac and Fannie Mae and the Department of Housing and Urban Development announce the maximum loan amounts they will accept from lenders for the next calendar year. These credit limits are known as “compliant” credit limits and typically have the lowest interest rates and the loosest underwriting guidelines for fixed-rate mortgages. Processing of loans with the new 2021 credit limits can start now but may not be completed until January 1st.
Refinancing homeowners and homebuyers benefit from these higher credit limits because the underwriting guidelines for compliant loans are typically more lenient than for jumbo loans. While the new compliant credit limit for single-family homes in Santa Cruz County will be $ 548,250, down from $ 510,410 in 2020, credit amounts ranging from $ 548,250 to $ 822,375 will be categorized as “extended” and slightly higher Interest.
Loan amounts greater than $ 822,375 are considered jumbo loans. Freddie Mac and Fannie Mae also offer financing for real estate with up to four units. While FHA loans only apply to condominiums, Freddie and Fannie finance condominium, vacation, or investment property. The tariffs for apartments not used by the owner are usually 1% higher by half.
Traditionally, these credit limits are based on the average house prices in the country. As home prices increase from one year to the next, the compliant credit limit increases and vice versa. When I first started lending in 1986, the applicable credit limit was $ 133,250. The average home price in Santa Cruz County in 1986 was $ 153,000, by the way. As of October of that year, the average home price was $ 1,200,704, according to the Santa Cruz County’s Real Estate Association website.
These credit limits vary from county to county. For example, in Monterey County, where average home prices are lower than Santa Cruz County, loans over $ 739,450 are considered jumbo loans.
The new credit limits for FHA loans this year were the same as this year’s credit limits for Freddie Mac and Fannie Mae loans. New credit limits for FHA in 2021 will likely match the new credit limits Freddie Mac and Fannie Mae just announced this week for next year. FHA loans offer the low down payment option of only 3.5% and accept gift money from relatives for the down payment. FHA loans are available to any homebuyer or homeowner with no income restrictions. FHA does not require borrowers to be first time home buyers.
Local mortgage advisor Peter Boutell has been writing this column for the Sentinel since 1995. Send questions to [email protected]