Michaela Phillips, Guaranteed Rate, Inc.

Michaela Phillips, Guaranteed Rate, Inc.

With home prices rising in most of the counties across Colorado, many hopeful homebuyers are left wondering how they will secure a loan to cover the purchase price of a home in their chosen area. In the past, options would have been very limited for the average buyer. However, many of the Fannie Mae changes in 2016 will open the door for more prospective borrowers who are shopping in the higher-priced areas of Colorado.

For the nation as a whole, the most common type of loan is known as a conforming loan. All this means is that the loan conforms to the guidelines that have been set forth by Fannie Mae and Freddie Mac. Of these parameters, it is the actual size of the loan that consumers tend to notice first. As of 2013, the size limit for conforming loans is $417,000. That is not going to get you very far in some of the pricier areas of Boulder or Denver counties.

If your loan amount exceeds $417,000, you may venture into jumbo loan territory. Because jumbo loans are not backed by Fannie Mae and Freddie Mac, lenders have created very restrictive guidelines in order to minimize their risk. The primary reasons for borrower reluctance has been that jumbo loans require a higher down payment and extensive documentation, which is simply not feasible for some homebuyers. These institutions began offering somewhat better interest rates and more flexibility for jumbo borrowers in recent years, but this still has not been a favorite loan option for many.

Fortunately, there is a reasonable middle ground between the generally inadequate conforming loans and costly jumbo loans. Each year, the Federal Housing Finance Agency evaluates home prices in high-cost areas across the nation. Based on this information, separate conforming loan limits are set for individual counties with higher-than-average home prices. We refer to loans that fall into this category as high balance conforming loans.

High balance conforming loans are an excellent solution for homebuyers who wish to borrow an amount just slightly over the conforming limit of $417,000, but would rather not take out a jumbo loan.  This type of mortgage is also a great choice for buyers who may not have enough of a down payment to cover 20% of their purchase price.

In the past, high balance loans required borrowers to pay a 10% down payment. That requirement has now been reduced to just 5%. Let’s put that into perspective. In the case of a $450,000 home, this means a buyer would need to come up with $22,500 less. For the average borrower, that number can make all the difference in the world. It’s important to note that the drawback to high balance loans is that they have higher interest rates. However, when you consider the alternatives that are available to buyers in high-cost areas, that is a small price to pay.

It should come as no surprise that Boulder and Denver counties both qualify as high-cost areas, so if you are interested in purchasing a home in one of these locations, a high balance conforming loan is definitely something to consider. In addition to lowering the down payment requirement, Fannie Mae has also increased our high balance limits. In Boulder County, the new limit is $474,950, and in Denver County, the new limit is $458,850. This means that buyers in Boulder County would be able to purchase a home up to $500,000 with just 5% down; in Denver, the purchase price would be $483,000 with just 5% down.

Because everybody’s financial scenario is different, mortgage loan requirements and details vary from person to person. If you need pre approval for a mortgage loan or simply want to explore your options, contact me at michaela@michaelaphillips.com.

Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc., the 8th largest retail mortgage company in the country. Since entering the mortgage industry in 1994, she’s consistently been a top producer. Being a VP at Guaranteed Rate offers many advantages to her and her clients including unparalleled customer service, efficiency, and most importantly competitive rates. NMLS: 312874

By Michaela Phillips, Guaranteed Rate, Inc.