The Federal Housing Finance Agency announced new baseline conforming loan limits for Fannie Mae and Freddie Mac in 2021: $548,250.
This is a 7.5% increase from the 2020 limit of $510,400 and marks the fifth consecutive year of increases from the FHFA.
This is important because now buyers and borrowers can purchase a higher priced home and still stay within conforming loan guidelines. That means easier qualifications at higher price points.
In 2016, the FHFA increased the Fannie and Freddie conforming loan limits for the first time in 10 years. Since then, the baseline loan limit has gone up by $131,250.
These new limits apply to conventional, conforming loans (those sold to or backed by Fannie Mae and Freddie Mac), for both refinances and purchases. Any loan amounts above these limits would be considered “jumbo” loans and fall outside of conventional guidelines.
Do I have to wait until 2021 to take advantage of a higher conforming loan amount?
Actually, no. The change actually applies to the date that Fannie and Freddie sign off on the new loan (either via “delivery” or “securitization”).
Essentially, any loan originated today would most likely close in 2021 and fall under the new loan limits.
As you probably know by now, one of my favorite mental coaches is Dr. Patrick Cohn of Peak Sports Performance. Dr. Cohn is a sports psychologist out of Orlando Florida.
He’s always preaching about mental toughness – as well as the techniques athletes can use to grasp it.
He sent out an e-mail blast recently that I’ve posted below regarding eliminating negative thoughts regarding past performance – and how to best get past it.
For instance, you whiffed the last two at-bats swinging at balls in the dirt and now you are facing the same pitcher with a runner in scoring position, “Here we go AGAIN!”
Or you walked the bases loaded and are having difficulty with your control and are now facing a hitter that has torched you in the past, “Here we go AGAIN!”
Or your team has blown the lead in the ninth inning the last two games and now you are clinging to a one-run lead in the bottom on the ninth, “Here we go AGAIN!”
This is a common problem among baseball players, but this mindset is based on a misconception. This misconception happened in the past will continue to happen in the present.”
It is an over generalization to believe the past will repeat itself but many baseball players, in the moment, buy into the “here we go again…” mindset.
When you allow past outcomes to influence your mindset in the present, the pressure heightens, which creates anxiety and tension.
Playing anxious and tight ball is a recipe for athletic disaster and under-performance.
In Action
The San Francisco Giants could have easily defaulted to the “here we go again” mentality after a breakdown against the Texas Rangers.
The Giants started out the first game of a three-game series against the Rangers with a tough game, blowing a six-run lead to lose in extra-innings at home.
To add to the potential pressure, the Giants had lost 10 of the previous 13 at their ballpark.
The San Francisco Giants had to quickly re-focus in Game 2 of their series.
The Giants quickly jumped out to a 5-0 lead but gave up three runs in the eighth inning.
Despite similar circumstances, the Giants fought forward and San Francisco relief pitcher Mark Melancon closed out the game with the bases loaded to secure a 5-3 win over Rangers.
Hunter Pence, who had a pinch-hit home run in the seventh, talked about their “keep attacking” mindset rather than succumbing to the “here we go again” mindset.
AP Photo/Ben Margot)
PENCE:“It’s very important to continue to send that message of relentless attack. Even where we are and as clouded as it may seem, you still never know. When there’s still a chance in this game of baseball, things can get hot in an instant.”
Knowing there is a chance is a great strategy to keep your head in the game and avoid the pitfall of “here we go again.”
Keeping Your Head in the Game
Knowing you have a chance comes in many forms:
*Knowing there is a chance to still win.
*Knowing there is still a chance to bounce back the next game.
*Knowing there is still a chance to hone your skills and improve your game.
*Knowing you can learn from the past and adjust.
If you can adopt the “there’s still a chance” mindset, you can focus on making things happen in the moment.
Let go of what’s already happened, look for signs to build momentum, and get things moving in a positive direction. Instead, take a trip down memory lane to when you did drive in that run!
Per Mr. Green: “If you’re a home buyer with a good deal of cash saved up in the bank, for example, but you have relatively low annual income, making the biggest down payment possible can be sensible. This is because, with a large down payment, your loan size shrinks, reducing the size of your monthly payment.”
Or, perhaps your situation is reversed.
“Maybe you may have a good household income but very little saved in the bank. In this instance, it may be best to use a low- or no-down-payment loan, while planning to cancel your mortgage insurance at some point in the future.”
Dan continues: “One thing is true for everyone, though — you shouldn’t think it’s “conservative” to make a large down payment on a home. Similarly, you shouldn’t think it’s “risky” to make a small down payment. The opposite is actually true.”
“About the riskiest thing you can do when you’re buying a new home is to make the largest down payment you can. It’s conservative to borrow more, and we’ll talk about it below.”
For today’s most widely-used purchase mortgage programs, down payment minimum requirements are:
Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.
Larger Down Payments Actually Increase Risk
Green continues: “As a homeowner, it’s likely that your home will be the largest balance sheet asset. Your home may be worth more than all of your other investments combined, even.
In this way, your home is both a shelter and an investment and should be treated as such. And, once we view our home as an investment, it can guide the decisions we make about our money.
The riskiest decision we can make when purchasing a new home?
Making too big of a down payment.”
The Higher The Down Payment, The Lower Your Rate of Return
The first reason why conservative investors should monitor their down payment size is that the down payment will limit your home’s return on investment.
Consider a home which appreciates at the national average of near 5 percent.
Today, your home is worth $400,000. In a year, it’s worth $420,000. Regardless of your down payment, the home is worth twenty-thousand dollars more.
That down payment affected your rate of return.
With 20% down on the home — $80,000 –your rate of return is 25%
With 3% down on the home — $12,000 — your rate of return is 167%
That’s a huge difference. Please do reach out to me for more information so we can figure out the best down payment strategy for you!
The Federal Reserve board announced last week that they think the federal funds rate will remain at close to zero through at least 2023.
That’s pretty bizarre…and they must have some sort of an amazing crystal ball that we don’t know about. I don’t know of any Federal Reserve Board that has given 2+ years of guidance in one day. Evidently they’ve turned into economic soothsayers.
As a reminder, the federal funds rate that is set by the Fed and mortgage rates (not set by the Fed) are two totally completely different instruments.
The Federal Funds Rate
The federal funds rate is the target interest rate set by the Federal Reserve Open Market Committee at which commercial banks borrow and lend their excess reserves to each other overnight. It really has limited impact on the mortgage market.
I’d invite you to read this article that I’ve written that outlines what really drives mortgage interest rates: https://lendingcoach.net/mortgage-rates-the-fed/ (hint…it isn’t the Federal Reserve).
Mortgage Interest Rates
This graph shows the deviation of the 30-year mortgage versus the federal funds rate – and you can see there’s quite a dramatic difference.
Inflation Worries
Secondly, the fact that the Federal Reserve stated that they are OK with inflation levels over their original 2% target will not help the bond market or mortgage backed securities (the true drivers of mortgage interest rates).
They stated that they would allow inflation to run moderately above 2% “for some time” – and many in our industry are worried that once inflation gets rolling (and it has been moving up, even in today’s COVID economy) it will be impossible to stop.
Mortgage rates will be affected by inflation because inflation erodes the buying power of the fixed return that a mortgage holder receives. And interestingly, the best way to combat inflation is by raising the Fed Funds Rate.
If inflation begins to rise, and there are already some signs of this, Mortgage Rates will start to climb in response. All this can absolutely still occur while the Fed Funds Rate is at zero.
Today’s Opportunity
With all of that said, the current mortgage rate environment presents an incredible opportunity that should be taken advantage of for either a purchase or refinance. Contact me so I can help you benefit before things change too dramatically!
One of the major performance enhancers for baseball players is muscular flexibility – and I bet that’s the last thing that players work on. Players take loads of batting practice, fielding practice, do long toss – and spend a great amount of time on strengthening on the field and in the weight room.
But what about flexibility to both improve performance and prevent injury?
“All baseball players need to warm up properly before performing high impact activities or speed and agility training. Static stretching was considered the norm in the past, but in recent years static stretching has become an addition to the everyday dynamic stretch routine.”
“Baseball players must stretch their hip flexors, quads, hamstrings, calves, trunk, glutes, IT bands, groin, and upper body. Each and every muscle throughout the body is used to maximize a baseball player’s performing potential”
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
