Mortgage limits have NOT changed (yet)

The compliant loan limit is set by the Federal Housing Finance Agency (FHFA). Mortgages below this amount generally have the lowest effective rates and in some cases are easier to obtain.

With prices that appreciate quickly over the past year, a sharp increase in the loan limit would be fat new. Potential buyers would be able to broaden their price range in many cases and homeowners whose loans exceed the previous loan limit might be able to refinance at a lower rate.

So that shouldn’t come as a surprise, then, word quickly spread about the earlier-than-normal increase in the $ 548,250 compliant loan limit to $ 625,000.

There is just one problem: nothing has changed yet! The compliant loan limit is always $ 548,250 and it will continue to be $ 548,250 until November 30 at the earliest.

So Why did people say $ 625,000?

It all started with a major lender posting ad that it would accept loan amounts up to $ 625,000 as “high balance” (HB) compliant. HB loans are already a thing for counties where house prices are much higher than the national average. This announcement was important as it extended HB eligibility to ALL counties (i.e. even those where the maximum amount is still the national minimum of $ 548,250).

Days later, a few other lenders followed suit with similar announcements. People have spoken. Apparently it’s easier to say, “See the loan limits have gone up to 625k?” “Than to say” have you heard that a certain lender is currently offering HB-compliant prices to non-HB counties? ” As such, it didn’t take long for the industry to be buzzing with questions and comments about “the new loan limit.”

Again, there is no new loan limit. This is just an innovative strategy from a some mortgage lenders designed to give their clients more flexibility and / or to stay ahead of their competition. It is Why they do, but why are they ABLE to do it? After all, a compliant loan that does not comply with existing guidelines is not so true for mortgage lenders.

The answer is actually surprisingly simple. These lenders know when the new loan limit will be announced, and they know it will almost certainly be over $ 625,000. Here’s why:

Compliant loan limits are in fact updated at the same time every year, immediately after the publication in November of the FHFA House Price Index (HPI). Specifically, the FHFA uses what it calls the “Extended Data HPI”. Determining new loan limits is as easy as looking at the expanded HPI for the third quarter of 2021 and comparing it to the third quarter of 2020.

The HPI number for Q3 is expected to be released on November 30. While the third quarter shows no improvement, prices have risen enough over the other three quarters to push the new loan limit to over $ 618,000. But these are quarterly figures, and the FHFA actually publishes monthly figures which closely mirror quarterly data. By the way, the first month of the third quarter was released this week and posted a gain of 1.4% – enough for the loan limit calculation to spit out $ 627,600 without any further price appreciation in August or in September.

In other words, and to make a very long story very short, $ 625,000 reflects a extremely safe and highly educated guess from a few mortgage companies only on where the new compliant loan limit will arrive at the end of November.

Market update

After a volatile week of significantly increasing the rate, the current week started off with the same thing. That said, volatility was much more contained and on Wednesday bond yields started to decline slightly. On Friday afternoon, 10-year Treasury yields (a loose indicator of mortgage rate dynamics) were at their low for the week. Unfortunately, these levels were even higher than the highs of last week.

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