Homebuyers Can Get a $1 Million Mortgage Soon With a 3% Down Payment

To qualify for a million dollar mortgage, Americans typically have to make a down payment of at least 20% of the home price. Starting next year, some buyers can cut as much as 3%.

Maximum mortgage backed by

Fannie Mae

FNMA 3.04%

And the

Freddie Mac

FMCC 2.88%

Rises to $1,089,300 next year in Few markets are quite expensive That includes Los Angeles and New York, up from $970,800, the Federal Housing Finance Agency, or FHFA, reported on Tuesday. The higher limit means that borrowers can qualify for larger loans without having to take out huge mortgages, which are not federally subsidized and have stricter requirements for income, credit, and down payments.

For most parts of the country, the agency said, the federally subsidized mortgage limit will rise to $726,200 from the 2022 maximum of $647,200. Limits are calculated annually using a formula that takes into account average home pricesthat was on the rise. The majority of mortgage loans are federally guaranteed.

In October, 12.5% ​​of homes for sale were priced at $1 million or more, according to Realtor.com data.

The new caps will give those looking to buy a home more options, said Daryl Fairweather, chief economist for the real estate firm. Redfin company” for buyers [the new cap] It opens up a whole new batch of homes for them to consider that they may have previously been over budget for their monthly mortgage payment,” she said.

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Having the option of making a smaller down payment for a more expensive home can offset it somewhat rising housing prices, said Kate Wood, home and mortgage specialist at


In addition to still-high home prices, potential buyers continue to face headwinds from a shortage housing inventoryAnd inflationary pressures on their overall balance sheets and worry about Possible recession.

“Buyers are by no means a bargain, but having to save $30,000 for a down payment — instead of $200,000 — can make a home in the $1 million range more achievable,” Ms. Wood said.

Housing is one of the most likely categories when tracking inflation, but it’s also one of the most complex to measure. David Harrison of the Wall Street Journal explains how the Shelter Index is calculated, and why it could spoil the Fed’s inflation forecasts. Illustration: Laura Kammerman

The main difference between mega mortgages and federally backed loans is accessibility.

In general, mega-mortgage lenders want borrowers to have a credit score of 740 or higher and a debt-to-income ratio in the range of 36% to 43%, said Jeff Ostrovsky, mortgage analyst at Bankrate. Down payment requirements can vary by lender.

For many federally backed loans, debt-to-income ratios may be as high as 50% and credit scores are usually at least 620.

Loans with a down payment of less than 20% generally require private mortgage insurance. average The first batch rose since the pandemicalong with housing prices.

The downsides of having a large mortgage with a small down payment are the higher monthly payments and the need to pay private mortgage insurance. Ms. Wood said that for a borrower with a $1 million mortgage and solid financing who made a 3% down payment, private mortgage insurance would add about $500 to their monthly mortgage payment.

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What questions or tips do you have about how to take advantage of the new $1 million federal mortgage limit? Join the conversation below.

There may be other benefits to mortgages within federal limits, said Danielle Hill, chief economist at Realtor.com. (News Corpowner of The Wall Street Journal, also operates Realtor.com under a license from the National Association of Realtors.) During the pandemic, for example, the Care Act Patience options offered For families with federally subsidized mortgages because the government can set a policy for subsidized Fannie Mae and Freddie Mac mortgages, she said.

Some buyers who qualify for traditional mega loans might be better off sticking with that option, said Ostrovsky, a mortgage analyst at Bankrate. Historically, jumbo loans have been more expensive than conforming loans—or those that meet FHFA standards and guidelines set by Freddie Mac and Fannie Mae—but they’ve recently kept a lower interest rate.

The national average mortgage rate for conventional, 30-year loans was 6.78%, while the jumbo rate was 6.32%, according to a Bankrate survey conducted Nov. 29.

Andrew Ackerman contributed to this article.

Write to Veronica Dagher at [email protected]

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