Chart: Mortgage Rates Have Dropped Steadily Since 2016 Began

At the end of 2015, we reported that many economists and housing analysts were predicting a gradual rise in mortgage rates during 2016. This was partly because of the Federal Reserve’s decision to raise the short-term federal funds rate, after holding it near zero for years (along with other factors).

But so far in 2016, mortgage rates have been dropping steadily. For instance, the average rate for a 30-year fixed mortgage has either dropped or remained unchanged every week since the beginning of the year. You can see this trend clearly in the mortgage rate chart below, obtained courtesy of Freddie Mac.

This downward trend contradicts the “conventional wisdom” we reported a few months ago, and it’s good news for anyone who is in the market to buy or refinance a home.

Here’s an updated look at mortgage rates in 2016, including the drops we’ve seen in recent weeks:

Chart: Watch Mortgage Rates Drop in 2016

The chart below accompanied Freddie Mac’s latest weekly survey of the primary mortgage market, published earlier today. On the right (and more recent) side of the chart, you’ll see the downward trend mentioned above. If you were to draw a vertical line upward from the December 31 marker, you’d end up with a nice down slope to the right of that line.

PMMS chart Feb 25
Freddie Mac’s mortgage survey chart, as of February 25, 2016

The average rates assigned to other mortgage products — including the 15-year fixed mortgage and the 5/1 ARM — have followed this downward trend as well. We have now hit a one-year low point in the 30-year fixed category.

It’s Official: 30-Year Rates Fall to a 12-Month Low

The average rate assigned to a 30-year fixed mortgage (FRM) has dropped by 39 basis points, or 0.39%, since the start of 2016. When 2015 came to a close, the average rate for a 30-year loan was 4.01%. As of the latest rate survey taken this week, that average had fallen to 3.62%. That’s the lowest it has been since early February of last year.

It bears repeating: today’s 30-year mortgage rate average has dropped to a 12-month low.

This should come as welcome news to home buyers in the market to purchase a house, and homeowners looking to refinance. Declining rates will improve housing affordability for buyers, and lessen the blow of rising home prices. Dropping mortgage rates will also put more homeowners in a position to refinance their existing loans and save money over the long term.

Other Loan Products Are More Affordable as Well

The 15-year mortgage rates average has also dropped steadily since the start of 2016. During the first week of this year, the 15-year average was 3.26%, according to Freddie Mac’s weekly survey. This week it fell to 2.93% — its lowest level since April of last year.

The average rate for a 5-year adjustable-rate mortgage (ARM) also dropped this week, landing at 2.79%.

Perhaps those upward predictions will eventually pan out. Perhaps we will end 2016 with rates being higher than they were at the end of last year. But right now, it’s just not happening. So much for forecasts.

Disclaimer: This story mentions forecasts and predictions offered by third parties not associated with the Home Buying Institute. The publishers of this website make no claims or guarantees about future interest rates or trends within the mortgage market.

FHA Alternative: Bank of America’s 3% Down Payment Mortgage Loan

Cash-strapped home buyers rejoice.

Bank of America, one of the largest mortgage lenders in the U.S. based on loan volume, recently announced it would offer a 3% down payment home loan without charging borrowers for private mortgage insurance. It’s a safe bet this product will be wildly popular with borrowers.

For many years, home buyers who wanted a mortgage loan with a down payment in the 3% range had but one option — an FHA loan. Mortgages insured by the Federal Housing Administration offer loan-to-value ratios up to 96.5%, for a out-of-pocket down payment as low as 3.5%.

But over the last couple of years, an increasing number of mortgage lenders have been offering 3% down payments on conventional (non-government-backed) home loans. We’ve written about this trend several times in the past.

Now, Bank of America appears to be jumping on the 3% bandwagon as well, according to a recent article in the Wall Street Journal.

Bank of America Offers 3% Down Payment with No PMI

Bank of America is the latest — and one of the largest — U.S. lenders that is now offering 3% down payment mortgage loans, according to a recent company announcement. The new financing product, which will be officially announced later today, allows Bank of America to compete with the FHA for home buyers seeking a lower down payment option.

But that’s not all. The Charlotte-based financial company said that their 3% down payment product will also allow home buyers to avoid private mortgage insurance (PMI). This is a noteworthy feature, because PMI is typically required on home loans that account for more than 80% of the purchase price.

Typically, when a borrower makes a down payment in the 3% range, he or she would have to pay for additional mortgage insurance that is designed to protects the lender. These insurance policies inflate the monthly payments and the total cost of the loan.

TD Bank was one of the first to offer such a product (a 3% down payment with no PMI), when it retooled its “Right Step” mortgage program back in 2014. Since then, other lenders have followed suit.

An Attractive Alternative to FHA Loans?

According to the Department of Housing and Urban Development (HUD), the smallest allowable down payment on an FHA loan is 3.5%. FHA also requires two types of mortgage insurance — there’s an upfront premium, as well as an annual premium. This is one of the biggest downsides to the program, especially since the annual premium has to be paid for the life of the loan in most cases.

The upfront mortgage insurance premium (MIP) for an FHA-insured home loan is currently 1.75% of the amount being borrowed. That’s $3,500 on a $200,000 mortgage, for example. The annual MIP for a 30-year fixed FHA loan is 0.85%.

So if Bank of America offers a 3% down payment option to home buyers, without the added cost of PMI, they will position themselves as an attractive alternative to FHA loans for cash-strapped borrowers.

According to D. Steve Boland, managing director for consumer lending at Bank of America, the company’s new loan product gives eligible borrowers a much-needed alternative to the Federal Housing Administration’s program:

“We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time,” he said. “We think there are still a lot of uncertainties out there in working with FHA.”

But not everyone will qualify for the new lending product. According to the company, borrowers must have a credit score of 680 or higher. There are size limits on the loan as well.

Chart: Average Mortgage Rates Drop Again, Despite Fed’s Actions

Home buyers rejoice. Mortgage rates have sunk even further into 3% territory, despite the Federal Reserve’s policy shift (and interest rate hike) that took place at the end of last year. This upends the predictions made by some economists and housing analysts, who expected mortgage financing costs to rise at the start of 2016.

Mortgage Chart Says it All: Average Rates Drop Again

The mortgage rate chart below was published by Freddie Mac on January 21, 2016. It shows average rates for the three loan categories they monitor (30-year fixed, 15-year fixed, and 5/1 ARM loan), dating back to this time last year. The most recent averages are shown on the right.

mortgage rate chart for January 21
Freddie Mac’s mortgage rate chart for the week ending January 22

Yesterday, Freddie Mac announced that the average rate for a 30-year fixed mortgage (FRM) fell to 3.81%. That’s the lowest it has been since November 5 of last year. The average rate for a 15-year FRM fell to 3.10% this week, while the 5/1 ARM loan average moved below 3% to end the week at 2.91%.

The thirty-year mortgage rate average has dropped for the last three weeks in a row, which is the exact opposite of what most analysts were expecting. Many industry observers were forecasting a rise in mortgage rates, partly as a result of the Fed’s policy change. Maybe a gradual rise is still on the way — but it’s clearly not here yet. On the contrary, home buyers and refinancing homeowners are still enjoying mortgage rates below 4%.

At the end of 2015, Fed officials announced they would raise the federal funds rate for the first time in years. This is the rate that banks use when loaning money to each other in the form of overnight transfers, and it has an indirect influence on consumer interest costs.

It’s important to note that the Federal Reserve does not control mortgage rates directly. But they do control the short-term federal funds rate, mentioned previously. Mortgage borrowing costs frequently (but not always) rise when the federal funds rate goes up. That’s why so many economists and analysts were expecting average mortgage rates to increase at the start of this year. So it’s somewhat surprising to see lending rates drop for the last three weeks in a row.

This week’s decrease was more than ten basis points, at least in the 30-year FRM category. The average rate for a 30-year fixed mortgage dropped by 0.11% from last week to this week, according to Freddie Mac’s long-running industry survey. That’s a significant decline, especially at a time when experts were expecting to see upward pressure on home loan interest rates.

It’s further evidence that you can’t bank on predictions.

Regardless of recent trends, the economists at Freddie Mac are sticking to their long-term forecast that rates will rise over the coming months. In a recent statement, they predicted that “mortgage rates will increase gradually through 2016 in response to monetary tightening, averaging 4.4% for the year,” and perhaps reaching 4.7% by the end of 2016.

Meanwhile, Home Prices Continue to Rise…

While mortgage rates have dropped in recent weeks, home prices in most U.S. cities continue to climb. And this is causing affordability problems for many would-be home buyers, especially those in hot markets like Dallas, Denver and San Francisco.

In their latest monthly housing forecast, the economists at Freddie Mac stated the following:

“The imbalance between housing demand and supply continues to boost prices [in the U.S.]. We expect house price growth to moderate a bit to 4.4 percent in 2016, still well above the long-run sustainable rate of house price growth.”

The 4.4% projection is a national outlook. Home prices could rise more than that in some hot real estate markets, like Seattle and Dallas. Such housing markets are currently experiencing supply shortages that are lifting prices faster than the national average.

Notes and disclaimers: This story contains forward-looking statements (forecasts) from third-party individuals and organizations not associated with the Home Buying Institute. The publishers of this website make no claims or assertions about future interest rate trends. Third-party data are deemed reliable but not guaranteed. The mortgage rate chart shown above was provided by Freddie Mac.

Seattle Loan Limits Jump $23,000 in 2016: New Limit $540,500

In 2016, Seattle mortgage shoppers will have an additional $23,000 of price range before they hit any loan limits. At the end of 2015, the Federal Housing Finance Agency (FHFA) announced it would increase the conforming loan limit for Seattle. In 2016, the new loan limit for single-family homes is $540,500. This applies to FHA and VA loans as well.

Seattle Gets Higher Conforming Loan Limits in 2016

A conforming loan is one that can be sold to the government-sponsored enterprises Fannie Mae and Freddie Mac, via the secondary mortgage market. Fannie and Freddie can only purchase loans up to a certain amount. This maximum amount is referred to as the conforming loan limit.

These limits vary by county. They get reviewed every year and are sometimes increased from one year to the next, in response to rising home prices.

The conforming loan limit for Seattle was increased for 2016. In 2015, the maximum size for a conforming single-family home loan was $517,500. In 2016, the single-family cap was raised to $540,500. That’s a one-year increase of $23,000.

According to the Federal Housing Finance Agency: “the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2016 will remain at existing levels, except in 39 high-cost counties where they will increase.”

King, Pierce and Snohomish counties were among the 39 counties where loan limits were increased. That means the increase will affect most cities and towns within the Seattle metro area.

One of Only Eight U.S. Metros With an Increase

As mentioned above, loan limits were increased in only 39 counties across the country. These counties are spread over eight or nine metropolitan areas, including Boston, Denver, Nashville, San Diego and Seattle.

All of these housing markets have something in common. Home prices within these metro areas rose significantly in 2015. That’s what prompted the FHFA to increase the 2016 loan limits for Seattle and the other high-cost areas.

FHA and VA Limits Were Also Raised

Seattle FHA loan limits were also increased for 2016, and they match the conforming caps stated above. The same goes for Veterans Administration (VA) home loans. All single-family loan limits in Seattle are now set at $540,500, through the end of 2016.

Borrowers who need financing in excess of $540,500 still have options. It’s called a jumbo loan. This is a mortgage product that exceeds the conforming caps shown above. But buyer beware — lenders are a bit more picky when it comes to jumbo loans. They tend to require more money down and higher credit scores.

Rising Home Prices Are the Reason

The Seattle loan limits for 2016 were increased in response to rising home prices. According to the real estate information company Zillow, home prices in the Seattle area rose by double digits last year. The Zillow Home Value Index (ZHVI) for the city rose by 12.8% over the last 12 months. The ZHVI for the broader metro area rose by 9% in the last year.

The S&P/Case-Shiller Home Price Index for Seattle rose by nearly 9% from October 2014 to October 2015 (the most recent data available at press time). So no matter which source you look at, the trend is the same. Seattle home prices rose sharply over the last year.

This is why the Federal Housing Finance Agency raised Seattle’s loan limits. In short, buyers are having to pay more for homes these days. So they need access to larger loans without bumping into the caps.

Milestone: Today’s 30-Year Mortgage Rates Highest Since July

Two weeks ago, we reported that financial analysts were predicting a gradual rise in mortgage rates during 2016. Could this be the start of it?

Thirty-year mortgage rates have been hovering below the 4% mark since mid-summer of this year. But not anymore. Earlier today, Freddie Mac reported that the average rate for a 30-year fixed home loan rose five basis points (0.05%) to land at 4.01%. That means today’s mortgage rates are the highest they’ve been since the week of July 23.

Granted, a five-basis-point jump is more of a small hop. So it’s no cause for alarm. What’s more important here, especially for 2016 home buyers and mortgage shoppers, is the possibility that we are witnessing the start of an upward trend. The Home Buying Institute encourages those in the market for a home loan to monitor such trends.

Today’s Mortgage Rates Rise to a 5-Month High

The average rate for a 30-year fixed mortgage is currently 4.01%, according to the weekly survey published by Freddie Mac earlier today. That brings today’s mortgage rates to a five-month high. The 30-year average hasn’t been above 4% since the week of July 23, when it hit 4.04% (shown in the middle of the chart below).

Mortgage rate chart, Freddie Mac
Freddie Mac’s mortgage rate chart for 2015

Today’s 15-year fixed mortgage rates are also slightly higher than last week, according to Freddie Mac’s weekly market survey. The 15-year average rose to 3.24% this week, a jump of two basis points over last week. The average rate for a 5-year ARM loan climbed to 3.08%, while the 1-year ARM held steady at 2.68%.

According to Sean Becketti, chief economist at Freddie Mac, consumer confidence played a role in today’s mortgage rate increase:

“In the final week of 2015, Treasury yields jumped reacting in part to strong consumer confidence in December. In response, the 30-year mortgage rate rose 5 basis points to 4.01 percent, ending a 5-month span below 4 percent.”

This is certainly a trend worth watching, especially if you’re in the market for a home loan. Home buyers, in particular, should monitor these development in light of rising house values. Buyers who purchase a home later in 2016 could end up paying more for a house and a mortgage loan.

Read our top tips for home buyers in 2016

A Widely Anticipated Increase?

It’s not surprising that today’s mortgage rates are higher than last week’s averages. In fact, many analysts were expecting this to happen. There are several factors driving this trend.

Earlier this month, the Federal Reserve announced it would raise the short-term federal funds rate for the first time in seven years. And this tends to have an indirect influence on mortgage borrowing costs. This is partly why so many analysts and economists have predicted a gradual rise in rates during 2016.

Freddie Mac’s economic team made just such a prediction earlier this month, forecasting that 30-year mortgage rates would climb to 4.7% by the end of 2016. Similarly, the Mortgage Bankers Association (MBA) predicted that the 30-year average would climb to around 4.8% by the fourth quarter of 2016.

In a survey conducted by Bloomberg earlier this month, 38 of 47 economists said that the Federal Reserve’s recent policy shift would cause 30-year mortgage rates to rise next year. This appears to be the general consensus across the board.

We’re not saying you should “bank” on these predictions. After all, they’re merely an educated guess. But when most everyone seems to be saying the same thing, perhaps it’s worth listening to.

Disclaimer: This story contains data shared by third parties not associated with the Home Buying Institute. Today’s mortgage rate averages were provided by Freddie Mac. Such information is deemed reliable but not guaranteed. Additionally, this article contains forward-looking statements (forecasts) that should be viewed as opinions, not facts. HBI makes no claims or assertions about future mortgage trends.

Mortgage Rates Will Rise in 2016, According to These Experts

Mortgage rates will rise gradually in 2016, ending the year higher than where they are now. That’s the forecast being offered by a growing number of analysts and economists in the United States. And they recently got more ammunition to support their predictions, courtesy of the Federal Reserve.

On Wednesday, Fed officials announced they were going to increase the federal funds rate for the first time in seven years. They’ve kept the funds rate (which banks use when transferring money among themselves) near zero for years, as part of an economic stimulus policy. But now they feel the economy has improved enough to warrant an increase.

In a related statement, Fed officials said: “Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.”

This is one reason why some analysts feel mortgage rates will rise in 2016. Granted, there is no direct connection between the interest rate controlled by the Fed and those used for consumer loans. But the Fed’s policy changes do have an indirect effect on home loan borrowing costs.

Simply stated, there’s a good chance we could see mortgage rates rise over the coming weeks and months, as a result of the Fed’s recent announcement.

Related: 3 housing forecasts and a top 10 list

Economist: Mortgage Rates Will Rise Gradually in 2016

Sean Becketti, the chief economist for Freddie Mac, discussed this indirect relationship in a recent statement: “We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates. Mortgage rates will tick higher but remain at historically low levels in 2016.”

The word “gradual” came up in many of the forecasts and predictions we reviewed for this story. The general consensus seems to be this: It is highly likely that mortgage rates will rise in 2016 from where they are right now, but they will probably rise gradually.

Translation: We probably shouldn’t expect any major “spikes” as a result of the Fed’s actions, or other causes. A slow rise over time seems more likely.

MBA: 30-Year Loan Rates to Average 4.8% by End of Next Year

The Mortgage Bankers Association (MBA) recently issued a forecast through the end of 2017. Their prediction is similar to some of the others we’ve encountered, in that it calls for a gradual rise in mortgage rates throughout 2016.

In a statement issued last month, MBA officials stated: “we expect that the 10‐Year Treasury rate will stay below three percent through the end of 2016, and 30‐year mortgage rates will stay below 5 percent until early 2017.”

The group expects the 30-year average to rise to 4.8% by the end of 2016. (It’s currently at 3.97%, according to the latest weekly survey by Freddie Mac.)

And speaking of Freddie Mac, they’ve also issued a forecast for rising interest costs in 2016…

Freddie Mac Forecast: 4.6% by the End of 2016

Freddie Mac, the government-controlled buyer of mortgage securities, recently predicted that the average rate for a 30-year fixed mortgage loan would rise to 4.6% by the end of 2016. Their outlook closely resembles the MBA projection mentioned above, in that it calls for a gradual (there’s that word again) rise in borrowing costs over the coming months.

Of course, they’ve been wrong before. This time last year, Freddie Mac’s economists were predicting roughly the same thing — a slow but steady rise during 2015. But that didn’t happen. In fact, 30-year mortgage rates are ending 2015 only slightly higher than where they were at the beginning of the year. The 30-year average was at 3.73% on January 3, 2015, and it was 3.97% when measured this week. So you have to take these forecasts with a grain of salt.

The big difference this time around is the Federal Reserve. The Fed kept short-term rates near zero all through 2015. But now they’ve announced the first increase in years, and that could throw a wrench into economists’ forecasting models. It’s a whole new ball game in this regard.

Disclaimers: This story contains forward-looking statements about the mortgage industry and the broader economy. Such statements were provided by third parties not associated with the Home Buying Institute. The publishers of this website make no claims or assertions that mortgage rates will (or won’t) rise in 2016. Such predictions are the equivalent of an educated guess and should not be viewed as fact.

San Diego Gets Higher Conforming Loan Limits for 2016

Home prices in San Diego County rose significantly in 2015, enough to prompt the Federal Housing Finance Agency (FHFA) to increase the county’s conforming loan limits. In 2016, mortgage borrowers will be able to finance up to $580,750 without crossing into “jumbo” loan territory.

San Diego Conforming Loan Limits for 2016

A conforming loan limit is the maximum size for mortgages that can be acquired by Freddie Mac and Fannie Mae. Anything larger is considered a jumbo loan and usually comes with stricter underwriting criteria. Most of the mortgage loans originated in the San Diego real estate market fall into the conforming category, though jumbos are still widely available as well.

The current (2015) conforming loan limit for San Diego County is $562,350. But that number will go up next year. San Diego is one of only 39 counties in the U.S. where the conforming loan limits will rise in 2016. For the rest of the country, the 2015 caps will simply “roll over” without any changes.

The 2016 conforming loan limit for San Diego County is $580,750, which marks an increase of $18,400 over the current limit. That’s for a single-family home. There are higher caps for multi-family units, as shown below.

Here are the 2016 limits for all property types:

One-Unit Two-Unit Three-Unit Four-Unit
$580,750 $743,450 $898,700 $1,116,850

Note: In this context, a “one-unit” property is a regular single-family home. A “two-unit” property is a duplex-style home with two separate residents living in it, and so on.

Conforming loan limits are applied countywide. So the maximum mortgage amounts shown above apply to all cities within San Diego County, including (but not limited to) Carlsbad, Del Mar, El Cajon, Escondido, La Mesa, Oceanside and San Marcos.

Aside from San Diego, only three other counties in California will receive loan limit increases for 2016. They are Monterey, Napa and Sonoma. For the rest of the Golden State, the current caps will be carried over into next year with no changes whatsoever.

Conforming loan limits are set by the Federal Housing Finance Agency (FHFA). They vary by county and are based on median home prices within the local area. The limits are reviewed annually and sometimes adjusted to keep pace with rising house values.

According to the FHFA:

“The latest year showed strong home price gains throughout the country and in some locations [including San Diego] those gains were sufficiently large to elevate loan limits above levels in any prior year.”

To be clear, house values have risen in many cities across the U.S. But there were only 39 counties where the annual gains were significant enough to warrant higher loan limits.

Jumbo Mortgages Still Widely Used

San Diego home buyers who need financing above conforming loan limits still have options. The “jumbo” mortgage is one such option.

By definition, a jumbo home loan is one that exceeds the conforming caps for Freddie Mac and Fannie Mae (shown above). These products are usually limited to borrowers with excellent credit and borrowing histories. Down payment requirements tend to be higher for jumbo loans as well. Lenders often require at least 20% down for these “non-conforming” products.

Jumbo loans typically have higher interest rates than their conforming counterparts, all other things being equal. The underwriting process can be stricter as well. This is due to the larger investment, and higher level of risk, on the lender’s part.

To learn more about conforming loan limits in 2016, you can visit our resource website at www.LoanLimits.org.

Conforming Loan Limits for 2016: Same as Last Year for Most Areas

For most U.S. cities, the conforming loan limit for a single-family property will remain at $417,000. Only nine metro areas, including Denver, Boston and Nashville, will get higher limits for 2016.

Last week, the maximum conforming loan limits for 2016 were announced. According to the Federal Housing Finance Agency (FHFA), the maximum conforming size for mortgage loans purchased by Freddie Mac and Fannie will stay at current levels — except for in 39 “high-cost” counties where they’ll increase.

In-depth: How conforming loans work

So, for most cities across the U.S., the 2016 conforming loan limits will be identical to those used in 2015. They’ll simply “roll over” unchanged.

This came as a surprise to many housing analysts. Home prices rose significantly in many U.S. cities over the last year, and such trends usually prompt the FHFA to increase the conforming loan limits. After all, higher price tags require larger loans for home buyers. But that didn’t happen. Instead, FHFA officials decided the current baseline loan limit of $417,000 will suffice in 2016.

Baseline Conforming Loan Limit for 2016: $417,000

As mentioned earlier, the baseline conforming loan limit for is set at $417,000. But these caps vary from one county to the next. To find next year’s limits for your area, you can download the complete PDF or Excel files available on LoanLimits.org. (The publishers of the Home Buying Institute created this website as a tool of convenience for mortgage shoppers.) The full PDF is also available at FHFA.gov.

Here are the “floor” or baseline conforming loan limits for 2016:

  • One-unit home: $417,000
  • Two-unit home: $533,850
  • Three-unit home: $645,300
  • Four-unit home: $801,950

Notes: Limits vary by county, so the baseline figures above might not apply to your area. In this context, “one unit” refers to a single-family home, “two unit” refers to a duplex-style property with two separate resident living in it, etc.

Nine Metro Areas Where Limits Are Going Up

While most home buyers and mortgage shoppers will encounter the same conforming loan limits in 2016, there are a handful of metropolitan areas where the caps will go up next year (Happy Holidays!). Specifically, there are 39 high-cost counties spread over nine metro areas where the caps will rise next year.

Loan limits will increase in 2016 for the following metro areas:

  • Boston, MA
  • Boulder, CO
  • Denver, CO
  • Napa, CA
  • Nashville, TN
  • Salinas, CA
  • San Diego, CA
  • Santa Rosa, CA
  • Seattle, WA

Most of these areas have something in common. Home prices in most of these real estate markets have risen to pre-crisis levels or above. In other words, houses are currently more expensive now than they were during the housing bubble of the early 2000s.

This is the trigger that causes FHFA to increase conforming loan limits for a particular area, and it’s clearly spelled out in the Housing and Economic Recovery Act of 2008 (HERA). That act set the baseline loan limit at $417,000 and mandated that, “after a period of price declines, the baseline loan limit cannot rise again until home prices return to pre-decline levels.”

In Denver and Boston, for example, home prices are now higher than the peaks reached during the housing bubble of the early to mid 2000s. So the 2016 conforming caps were increased for these markets to reflect the “new normal.” Over the last year, house prices have risen in all of the metro areas listed above, albeit to varying degrees.

Price Gains Alone Not Enough to Warrant Increase

While many U.S. cities experienced price gains over the last year, only the metro areas shown above will see higher loan limits in 2016. According to FHFA:

“Although other counties [across the country] also experienced home value increases in 2015, after other elements of the HERA formula — such as the statutory ceiling and floor on limits — were accounted for, these local-area limits were left unchanged.”

Jumbo Mortgage Products Still Available

To be clear, there are financing options available for home buyers who need to borrow more than the above-stated limits. They’re called jumbo loans. These are mortgage products that exceed the conforming limits for Freddie Mac and Fannie Mae. Jumbo mortgage products, while harder to come by, are still very much in use these days.

In fact, it appears to be getting easier to qualify for a jumbo product. While mortgage lenders typically set higher standards for borrowers seeking an “over-sized” mortgage, there appears to be some easing within the market. We reported on this earlier this year. Additionally, there are plenty of “non-bank” lenders out there competing for jumbo business.

So there you have them, the new (and mostly unchanged) maximum conforming loan limits for 2016. For most counties in the U.S., the current caps will carry over into the new year. Mortgage shoppers in the nine metro areas above will enjoy higher caps. The Federal Housing Finance Agency has set up a specific email address for people with questions about the conforming limits. Questions can be sent to LoanLimitQuestions@fhfa.gov.

Prediction: 30-Year Mortgage Rates Above 4% By End of 2015?

Are you planning to buy a home in the near future? Need a home loan to finance your purchase? If so, you might want to think about doing it sooner rather than later. The average mortgage rate for a 30-year fixed home loan rose again this week, nearly reaching 4%. This is according to the latest mortgage market survey conducted by Freddie Mac, published earlier today.

The 30-year rate average has been hovering below 4% since the end of July 2015. Rates could remain low going into 2016, giving home buyers more time to save. But there’s also a strong chance the 30-year average will rise above 4% by the end of this year. In fact, several analysts have made mortgage predictions to this effect — and that includes the economists at Freddie Mac.

Current Rates: 30-Year Average Approaches 4%

As of November 12, 2015, the average rate for a 30-year fixed home loan has risen to 3.98% (with an average of 0.6% fees and points at closing). That’s an increase of 11 basis points, or 0.11%, over last week’s average.

This is based on the weekly mortgage market survey conducted by Freddie Mac, the government-controlled corporation that buys and sells mortgage securities. This long-running survey dates back to the 1970s and is one of the best indicators of lending rates and trends.

Here are the average rates in four loan categories, as of November 12:

  • 30-year fixed mortgage: 3.98%
  • 15-year fixed mortgage: 3.20%
  • 5/1 adjustable (ARM) loan: 3.03%
  • 1-year ARM loan: 2.65%

A Fairly Stable Year, So Far

To give you some perspective, the current 30-year mortgage rates are only slightly higher higher than they were at the start of the year. So 2015 has been a pretty stable year, as far as long-term interest rates go.

On January 8, 2015, for example, Freddie Mac was reporting an average rate of 3.73% in the 30-year fixed mortgage category. That was only slightly lower than the current average reported earlier today.

This flies in the face of earlier predictions that mortgage rates would rise steadily throughout 2015 — that just hasn’t happened. Keep this in mind when mortgage analysts make additional predictions for 2016, as they inevitably will. You have to take these forward-looking statements and forecasts with a grain of salt. As we’ve seen, they don’t always pan out.

And speaking of those predictions…

Prediction: Mortgage Rates Above 4% by the End of 2015?

Many economists expect the average 30-year mortgage rate to climb above 4% by the end of this year. Freddie Mac’s own research team made a similar prediction earlier this week. According to their forecast, the average rate for a 30-year home loan will hit 4% between now and the end of 2015.

Looking even farther out, here is what Freddie Mac expects 30-year mortgage rates to do over the course of 2016:

  • Q1 2016: 4.0%
  • Q2 2016: 4.2%
  • Q3 2016: 4.4%
  • Q4 2016: 4.6%

These numbers came from Freddie Mac’s “Economic and Housing Market Outlook” issued on October 26, 2015. But again, they’ve been wrong in the past.

Attributed to Sean Becketti, chief economist, Freddie Mac.

“Recent commentary suggests interest rates may rise in the near future. Janet Yellen referred to a December rate hike as a ‘live possibility’ if incoming information supports it. The October jobs report to be released this Friday will be one crucial factor influencing the [Federal Reserve’s] decision.”

The Bottom Line for Home Buyers

No one can predict the future of mortgage rates with complete accuracy. Economists can (and frequently do) make educated guesses based on current trends and conditions. But these predictions are still only guesses. You can’t bank on them.

With that being said, the general consensus among industry watchers is that mortgage rates will rise gradually between now and the end of 2015, followed by a slow-but-steady rise in 2016. If that’s the case, home buyers might benefit from buying sooner rather than later.

Disclaimers: This article contains third-party data that are deemed reliable but not guaranteed. It also contains predictions and forecasts relating to long-term mortgage rates. Such statements are the equivalent of an educated guess and should not be viewed as facts. The Home Buying Institute makes no claims about future interest rates or mortgage trends.

Fed: Borrowers Could See Relaxed Mortgage Standards in 2016

With less than two months left in the year, many home buyers are looking ahead to 2016. So the Home Buying Institute has been publishing a variety of “forward-looking” reports involving home prices, mortgage rates, and other housing-related trends. This time around, we turn our attention to mortgage standards in 2016.

A new industry survey from the Federal Reserve revealed that mortgage lenders have eased the standards used to qualify borrowers for conventional home loans. This is good news for borrowers who are planning to purchase a home in 2016. Relaxed mortgage standards could make it easier for marginally qualified borrowers to secure financing.

Some Banks Ease Mortgage Standards, Going Into 2016

On November 2, 2015, the Federal Reserve published the findings from its latest Senior Loan Officer Opinion Survey. This quarterly survey is sent to up to 80 large domestic banks in the U.S., as well as 24 U.S. branches of foreign banks. As a result, it’s a pretty good indicator of mortgage qualification standards and trends.

With regard to home loans, the latest survey showed the following:

“Regarding loans to households, banks reported having eased lending standards on loans eligible for purchase by the government-sponsored enterprises and on qualified mortgage (QM) loans over the past three months on net.”

The “government-sponsored enterprises” (GSEs) mentioned above are Freddie Mac and Fannie Mae. Mortgage lenders often sell the loans they originate to the GSEs, as a way to reduce risk and increase liquidity. So the easing of mortgage standards mentioned above mainly refers to conventional home loans — those that are not insured by the federal government.

A Different Story for FHA and VA Loans?

Over on the government side, it seems that standards might actually be tougher for FHA and VA loans. According to the Fed’s November report: “In contrast [to the easing mentioned above], modest net fractions of banks tightened standards on government residential mortgages.”

In this context, “government residential mortgage” includes home loans that are insured or guaranteed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). This category also includes purchase mortgages that are originated under the U.S. Department of Agriculture home loan programs.

So we have some mixed results here. Senior loan officers have reported some degree of easing for conventional home loans, while standards seem to have increased a bit for government-insured products.

Pros and cons: Conventional vs. FHA loans

The bottom line: Reasonably well-qualified borrowers should be able to secure financing in 2016, and it might even be easier on the conventional side. Meanwhile, lenders appear to be setting higher standards for FHA and other government-insured home loans.

Still No Love for Subprime Borrowers

The latest survey also provided some insight into mortgage standards for “subprime” borrowers. According to the Federal Reserve’s report, most banks said they “do not extend home-purchase loans to subprime borrowers.”

These are borrowers with weak credit histories resulting from payment delinquencies, charge-offs, bankruptcies, etc. The subprime category also includes borrowers with “reduced repayment capacity” as indicated by their credit scores or debt-to-income ratios. Would-be home buyers who fall into this category are often turned down for financing.

About the Survey
The Federal Reserve’s “Senior Loan Officer Opinion Survey on Bank Lending Practices” solicits input from more than 100 banks across the United States. The goal is to gain insight into current mortgage lending trends and standards, based on survey responses. The Federal Reserve typically conducts the survey once per quarter. They time it so they can publish the results before the regularly scheduled meetings of the Federal Open Market Committee (the Fed’s “think tank”). On occasion, the Federal Reserve will conduct one or two additional surveys during the year, to gain additional insights into mortgage standards and trends for 2015 – 2016.