FHA Loan Limit Rises for 2023

The Department of Housing and Urban Development recently announced the increased FHA mortgage limits for 2023. In the new year, the FHA limit will go to $592,250 for single family homes in Metro Atlanta counties. That’s an increase of 25.6% over the 2022 FHA loan limit of $471,500.  (Note that non-metro Georgia counties will have a lower FHA loan limit. Most, but not all, non-metro counties will have a $472,030 limit for 2023. Go to https://entp.hud.gov/idapp/html/hicostlook.cfm to search for the FHA limit in your specific county.)  The new FHA loan limit means that a Metro Atlanta buyer can purchase a $613,730 house with a 3.5% down FHA loan.

On a percentage basis, this increase is significantly higher than the 12% increase in the conforming loan limit which was recently reported in the Mortgage Blog.

For perspective, the 2018 FHA loan limit was $359,950, so the FHA limit has increased by about 64.5% over the last 5 years. In that same time period, conventional loan limits have risen from $453,100 to the new $726,200 level – a 60.3% increase.

The greatest benefits of FHA loans accrue to home buyers who have less than great credit and limited cash for a down payment. Home buyers can obtain an FHA loan with a 3.5% down payment. For buyers with lower credit scores, FHA loans often provide lower interest rates and payments than conventional loans. And FHA loans allow shorter waiting periods after major credit events such as foreclosures and bankruptcies.

High home value appreciation in 2020 and 2021 has driven the increases in FHA and conforming loan limits. But in 2022, the rapid pace of home value appreciation has cooled considerably.  In recent months, home buyers have been able to win some contracts with offers less than the home’s list price, and some sellers have contributed cash towards closing costs.  Unless market forces change dramatically, my expectation is that the 2024 FHA loan limit increase will be much less than 25.6%.

If you want to buy a Georgia home in 2023, give me a call. I can help you think through your options, plan for your purchase and make aggressive offers needed to win in this competitive market.

New 2023 conforming loan limit

Over the past few years, we’ve witnessed housing prices jump due to limited inventory along with the high demand for homes. With housing prices going up, the conforming loan limit goes up too. Just announced, the 2023 conforming loan limit is $726,200. 

After a decade of remaining at $417,000, the conforming loan limits continues to soar.

• 2017 max limit was $424,100 (up from $417,000 for only about a 2% increase)
• 2018 max limit was $453,100 (about a 7% increase)
• 2019 max limit was $484,350 (another increase of about 7%)
• 2020 max limit was $510,400 (just over a 5% increase)
• 2021 max limit was $548,250 (just shy of an 8% increase)
• 2022 max limit was $647,200 (an 18% increase from 2021)
• the new 2023 maximum conventional loan limit will be $726,200. This is another double digit percentage year of year increase. This time just over 12% higher than 2022.

With 2023 just around the corner, we can begin using the new limits today. This is great news for home buyers as having a larger conventional loan limit helps when navigating the housing market.

With the minimum down payment being 3%, a purchase price of $750,000 could be bought with less than $24,000 down!

By law, loan limits are calculated annually using a formula that factors in average housing prices. I would not expect to see a large increase in 2024 as experts predict a flattening of home values (and depreciation in some markets). This could be where we stand for a couple of years.

If you are looking to purchase in the state of Georgia, contact me today. I can get you prequalified and ready to make an offer on your new home in minutes!

Possible Changes to FHA Mortgage Insurance?

At a recent mortgage bankers conference, a Department of Housing and Urban Development (HUD) executive stated that HUD is considering lowering FHA mortgage insurance premiums. The executive stated that no decision has been made, but the topic is the subject of intense analysis and priority at HUD.

As a mortgage loan originator, I would welcome this change. From my perspective, conventional loans are often more attractive to borrowers than FHA loans because (1) FHA’s up-front mortgage insurance (MI) premium, (2) possibly higher monthly FHA MI premiums, and (3) FHA monthly MI premiums can be permanent.

FHA mortgages are meant to help borrowers who can only make low down payments and who have less than great credit scores. Home buyers can obtain FHA loans for a minimum 3.5% down payment. FHA does not adjust interest rates as much when the borrower’s credit score is lower, and FHA also does not adjust MI premiums for lower credit scores. FHA loans can be great for borrowers with credit scores less than 680 and who cannot make a 20% down payment.

FHA charges a 1.75% up-from MI premium for all loans. Conventional loans do not charge an up-front MI premium. On a $300,000 loan, this costs the borrower $5,250. Advantage, conventional loans.

FHA charges a 0.85 monthly MI premium when the down payment is less than 10%, and a 0.80 monthly MI premium when the down payment is more than 10%. These premiums do not vary based on the borrower’s credit score. This makes FHA loans more attractive to borrowers with lower credit scores and less attractive to those with higher scores. For a $300,000 base loan amount with a 3.5% down payment, the monthly FHA MI premium would be $212.50. For comparison, here’s a list of possible conventional monthly MI premiums for different credit scores (circumstances may vary):

• 620 Credit Score – $427.50
• 640 Credit Score – $327.50
• 660 Credit Score – $232.50
• 680 Credit Score – $197.50
• 700 Credit Score – $162.50
• 720 Credit Score – $132.50

If the borrower makes a 10% or more down payment, FHA requires monthly MI premiums for 11 years. If the borrower’s down payment is less than 10%, the MI premiums are permanent. Conventional MI can be canceled based on specific criteria. If the buyer plans to keep the home for many years, the non-permanent aspect of conventional MI could save them money.

Ultimately, there are many details to evaluate for a home buyer with a less than 720 credit score and limited cash for a down payment. I do hope FHA will lower MI premiums. I also hope FHA will consider eliminating the permanent nature of mortgage insurance for buyers with less than 10% down payments. If nothing else, FHA should terminate the mortgage insurance after 11 years. There is no reason for someone to pay mortgage insurance for the entire 30 year loan term. Before it was made permanent, FHA required mortgage insurance for 11 years on all homes. If HUD elects not to change the MI premiums, I think they should at least make this change.

Do you know someone who wants to buy a home in Georgia? Connect them with me and I will help them evaluate all the different loan options based on their specific circumstances and plans, helping them obtain the mortgage that best meets their needs.

Stricter Condo Underwriting Guidelines – Part 2

Now that we have reviewed the key pre-2021 condo HOA underwriting standards, it’s time to review the updates. Fannie Mae and Freddie Mac are now requiring HOAs to answer the following new questions:

• Are there any significant deferred maintenance issues or unsafe conditions present for the project? If the HOA respondent answers yes, then they must provide more detail about the following:
  • Does the building have deficiencies, defects, damage, or deferred maintenance that could affect the safety, structural integrity, or habitability of the project? If the answer is yes, the underwriter will require more detail and any documentation (e.g., inspection reports, engineering documents, etc.) pertaining to the documented issues.
  • Does the project require substantial repairs or rehabilitation? If the answer is yes, the underwriter will require more details including the planned completion date for the work and related documentation.
  • Is there any impediment to the safe and sound functioning of any key building components, including foundation, roof, HVAC, plumbing, load bearing structures, or electrical system? Again, details and documentation must be provided if the answer is yes.
  • Has the project failed to obtain occupancy certificates or pass local regulatory inspections or certifications? If yes, details and documentation must be provided.
• Does the project have any current or planned special assessments?
  • If yes, detail must be provided regarding reasons for the special assessment, total amount due, and repayment terms.
  • If yes, the HOA must document whether the current budget is sufficient to fund any necessary repairs.

As you can see, the Florida condo tragedy really grabbed the attention of Fannie and Freddie executives. They now want to carefully verify that the buildings / projects that serve as collateral for condo mortgages are safe and structurally sound.

Do you know someone who wants to buy a Georgia condominium? If you do, ask that buyer if they like wasting time and money.  If they answer “No,” please refer them to me.  I’ll work with the buyers and their Realtors during the home search, coaching them on key HOA questions to ask listing agents early in the process, before they spend time searching for and waste money on inspections and appraisals for ineligible condos.

Stricter Condo Underwriting Guidelines – Part 1

The underwriting guidelines for condominiums have long been more rigorous than for single-family homes and townhouses.  Ultimately, mortgage lenders consider condos to have greater risks than other property types.  Lenders want to verify the fiscal health of the homeowners association, in case the borrower defaults and the lender must foreclose and take ownership of the condo.  So lenders underwrite the HOA management in addition to underwriting the borrower’s ability to pay the mortgage.

The Florida condo tragedy of June 2021 has prompted a review of national condo underwriting guidelines, which has led to stricter guidelines.  In this post, we will review some previous HOA requirements.  In the next post, we will cover the recent guideline changes.

As part of condo underwriting (“UW”), the HOA management company must provide the following documents and answer the following (and other) questions:

• Current annual HOA budget – UW wants to verify that at least 10% of annual dues revenues are set aside as “reserves,” to cover unexpected maintenance issues.  If less than 10%, UW will likely deny the loan.
• Master insurance policy – UW wants to verify that minimum coverage levels exist.  Without minimum master policy coverage, UW will likely deny the loan.
• Are there any active or pending lawsuits against the HOA?  If yes, UW will likely deny the loan.
• Does any single entity (person or business) own more than 20% of the units  (Freddie Mac allows 25%.)  ?  If yes, UW will likely deny the loan. Note this is a change in guidelines as the threshold used to be only 10%. 
• What percentage of the facility’s square footage is commercial space?  If more than 35%, UW will likely deny the loan. Note this is a change in guidelines as limit was previously just 25%. This is a welcome change for sure with all of the mix use condominiums being built. 
• What percentage of owners are delinquent on their HOA dues?  If more than 15%, UW will likely deny the loan.

There are other questions posed to the HOA management company, but the above items highlight those that most frequently cause approval problems.  Note that there are limited condo reviews and the more detailed (and potentially problematic) full reviews.  Full reviews are required if the down payment is less than 10%.  So, from my perspective, it’s always best to make a 10%+ down payment on a condo, if possible.

Check out my next blog post to learn more about the new HOA UW criteria.

Do you know someone who wants to buy a Georgia condo?  If the condo buyer does not like wasting money, have them call me.  I’ll coach buyers and their Realtors on key HOA questions to ask up front, before they possibly waste hundreds of dollars on inspections and appraisals for a condo that may not be approved by UW.

FHA Loan Limit Rises for 2022

The Department of Housing and Urban Development recently announced the increased FHA mortgage limit for 2022. In the new year, the FHA limit will go to $471,500 for single family homes in Metro Atlanta counties. That’s an increase of 14.2% over the 2021 FHA loan limit of $412,500.

This increase mirrors the 18% increase in the conforming loan limit which was recently reported in the Mortgage Blog.

For perspective, the 2017 FHA loan limit was $358,800, so the FHA limit has increased by about 31.4% over the last 5 years. In that same time period, conventional loan limits have risen from $424,100 to the new $647,200 level – a 52.6% increase.

The greatest benefits of FHA loans accrue to home buyers who have less than great credit and limited cash for a down payment. Home buyers can obtain a FHA loan with a 3.5% down payment. For buyers with lower credit scores, FHA loans often provide lower interest rates and payments than conventional loans. And FHA loans allow shorter waiting periods after major credit events such as foreclosures and bankruptcies.

Rapidly increasing home values are driving the increases in FHA and conforming loan limits. And increasing rents are also pushing more households to consider a home purchase. This higher home demand continues pushing prices even higher. The new FHA loan limit means that an Atlanta buyer can purchase a $488,600 house with a 3.5% down FHA loan.

If you want to buy a Georgia home in 2022, give me a call. I can help you think through your options, plan for your purchase and make aggressive offers needed to win in this competitive Atlanta market.

New 2022 conforming loan limit

Over the past two years, we’ve witnessed housing prices jump due to limited inventory along with the high demand for homes. One good thing coming out of this is a higher conventional loan limit. Just announced, the 2022 conforming loan limit is $647,200.

After a decade of remaining at $417,000, this is the sixth consecutive year the limit has risen.

• 2017 max limit was $424,100 (up from $417,000 for only about a 2% increase)
• 2018 max limit was $453,100 (about a 7% increase)
• 2019 max limit was $484,350 (another increase of about 7%)
• 2020 max limit was $510,400 (just over a 5% increase)
• 2021 max limit was $548,250 (just shy of an 8% increase)
• the new 2022 maximum conventional loan limit will be $647,200. This is a gigantic increase year-over-year. It is almost $100,000 higher and about an 18% increase from 2021!

With 2022 just around the corner, we can begin using the new limits today. This is great news for home buyers. Home prices continued to increase in 2021. Having a larger conventional loan limit helps when navigating the housing market.

Also, with the minimum down payment being 3%, a $667,000 home could be purchased with just $20,000 down!

Looking to purchase in 2021 and use the 2022 conforming loan limit? If you are looking to purchase in the state of Georgia, contact me today. I can get you prequalified and ready to make an offer on your new home in minutes!

Mortgage Interest Rate Factors

Here is a quick summary of how national policy priorities can impact conventional mortgage interest rate calculations. Conventional mortgage giants Fannie Mae and Freddie Mac charge what are called “guarantee fees” in their interest rate pricing models. These “g-fees” cover losses from borrower defaults, administrative costs and provide a return on capital. In 2019, g-fees amounted to 58 basis points on average for a 30-year fixed rate loan. Lenders typically pass these g-fees along to borrowers in the form of higher interest rates.

Congress and the mortgage giants can modify mortgage interest rate fee structures to generate additional revenue to cover national policy priorities. For example, in 2020, Fannie and Freddie implemented a 50 basis point fee specific to mortgage refinances (dubbed the “Adverse Market Fee”). The fee only applied to refinances, not purchases. This fee caused rates on refinances to be slightly higher than rates on similar home purchase mortgages. The refinance fee was eliminated earlier in 2021.

Congress sometimes mandates fees to pay for specific legislative priorities. For example, in 2011, Congress applied an extra 10 basis points to the g-fees charged by Fannie and Freddie. Congress passed this extra fee to cover a three-month payroll tax cut. The fee was set to expire in September 2021. Recently, some Senate members have proposed moving the expiration date from 2021 to 2032. They estimate the extra g-fee will generate $21 billion in revenue to help fund the estimated $579 billion designated to pay for roads, power grid modernization, and rural broadband expansion. Mortgage industry and housing advocacy groups – often in opposition on other policy proposals – are now united in opposition to this use of g-fees. The infrastructure package does not have a housing component. So this proposal will tax home mortgage holders without benefitting national housing concerns. People who pay cash for their homes will not pay this fee.

How will this impact you? If the fee is extended, there’s no change to what people have experienced since 2011 in terms of applying for a home loan or changes for doing a home loan. If the fee is allowed to expire, it won’t cause a significant change in interest rates as the fee is minimal. Ultimately there will be a minimal impact to consumers. I just find this topic interesting.

All of this said, if you (or someone you know) want to buy a home in Georgia, now is still a great time to buy as interest rates are near historic lows. These current low rates increase your buying power. And Dunwoody Mortgage offers tools to help home buyers win the contract in this competitive market. Contact me to get started.

Conforming loan limits are up again

For the fifth consecutive year, the conforming loan limit is rising! I know what you may be thinking… wasn’t there a post similar to this in 2019, and the year before that… and the year… You get the idea, and you would be correct.

Historically, conforming loan limits rise every year, but it isn’t always true. From 2007 to 2016, the conventional loan limit remained steady at $417,000. With the housing crash and slow recovery, FHFA held the maximum amount steady for a decade. We experienced a modest increase in 2017 followed by more substantial increases for the next few years.

• 2017 max limit was $424,100 (up from $417,000 for only about a 2% increase)
• 2018 max limit was $453,100 (about a 7% increase)
• 2019 max limit was $484,350 (another increase of about 7%)
• 2020 max limit was $510,400 (just over a 5% increase)
• the new 2021 maximum conventional loan limit will be $548,250, which is just shy of a 8% increase from 2020. As tough as this year has been, we’ll take all the good news we can get!

With 2021 just around the corner, we can begin using the new limits today. 

This is great news for home buyers. Home prices increased substantially in 2020. Having a larger conventional loan limit helps when navigating the housing market.

As always, with the conforming loan limit increase, we can also expect the maximum FHA loan limit to increase as well. Once FHA makes their formal announcement, The Mortgage Blog will update you on it too!

Ready to get a jump on the spring market for 2021? The spring market is already starting! If you are looking to purchase in the state of Georgia, contact me today. I can get you prequalified and ready to make an offer on your new home in minutes!

CFPB extends patch (as expected)

At least one thing happened as expected in 2020… the CFPB extends the patch on qualified mortgages. The extension lasts until the mandatory compliance date of a final rule amending the General Qualified Mortgage.

The announcement comes only a few months before the expiration date of January 10, 2021. The CFPB is releasing the final rule to “ensure a smooth and orderly transition away from the GSE Patch and to maintain access to responsible, affordable mortgage credit upon its expiration.”

So no major disruption to the housing market, which is ideal considering the current economic situation.

Once the CFPB releases details of the new rule, I’ll be sure to post the details.