Mortgage Loan Limits to Increase in 2020
The Federal Housing Finance Agency is set to increase conforming loan limits once again in the new year, making 2020 more favorable for buyers. The limit will raise to $510,400 for most parts of the U.S. and $765,600 for high-cost areas. Mortgage loan limits have now increased each of the last four years.
Understanding the conforming loan limit
The conforming loan limit is defined as the dollar cap on the size of a mortgage that Fannie Mae and Freddie Mac will purchase. The Housing and Economic Recovery Act (HERA) of 2008 requires that the limit be adjusted every year to reflect the latest market changes. In 2019, the FHFA set the level at $484,350.
The recently increased conforming loan applies to single-family homes in all states except Hawaii and Alaska. Updated loan limits for multifamily properties between two and four units are as follows:
$653,550 for 2-unit properties
$789,950 for 3-unit properties
$981,700 for 4-unit properties
Why another increase?
Per HousingWire, home prices increased by an average of 5.38% between the third quarter of 2018 and the third quarter of 2019. As a result, the baseline loan limit will increase by the same percentage. Prospective buyers should be aware that the increase takes effect in January.
How the increase affects home buyers
Maybe you wanted to buy a home in 2019 but were up against the borrowing limit of $484,350. Thanks to another increase in 2020, you don’t have to put off your dream of owning a home any longer! If you only take one piece of information from this article, it should be that borrowers will have an easier time obtaining a mortgage in the new year.
Higher loan limits allow you to qualify for more home, which means you have a better chance of getting into your forever home, for less. Not to mention, rates are expected to remain competitive for much of 2020, so make it a point to start the mortgage pre-approval process sooner than later. Keep in mind that late summer and early fall are often the best times to buy a house.
Jumbo vs. conforming loans
The impending loan limit increase applies to loans backed by Fannie Mae and Freddie Mac. But what if you require a mortgage that exceeds the 2020 conforming limit of $510,400? In this case, your lender would suggest a jumbo loan.*
Let’s say you’re hoping to purchase a home in a hot real estate market such as Seattle, Portland, or Denver. A non-conforming mortgage, such as a jumbo loan, offers greater buying power for those looking in high-cost areas. Borrowers must have a steady employment history, a minimum credit score of 680, and be able to put 10% down in order to qualify for a jumbo loan.
It’s no secret why jumbo loans are becoming more popular among borrowers — no mortgage insurance, competitive rates, and the convenience of a single loan for the entire loan amount. That said, you’ll also need more reserves with this loan program. Plan to have 6-18 months of reserve (emergency) funds in a savings account prior to your closing date.
*FHA, VA, Conventional, and USDA loan requirements are subject to change. Jumbo and non-QM loans may be temporarily unavailable. As a result of COVID-19, mortgage investors are unable to support as many loans, meaning underwriting guidelines for government and conventional loans are becoming more strict.
No VA loan limits in 2020
It was recently announced that while VA home loan funding fees would rise, limits would disappear in 2020. Starting Jan. 1, the Department of Veterans Affairs can back loans that exceed the conforming loan limit. The elimination of VA loan limits should be a game-changer for military borrowers who are searching for either a larger home or a place of their own in a higher-priced market.
There’s a lot to like about the VA home loan, including no down payment and no mortgage insurance for qualified borrowers. Another plus with the VA is that rates tend to be lower than what’s available in a conventional mortgage because it’s guaranteed by the government. Veterans, active duty, and qualified surviving spouses are all eligible for this loan.
Ready to become a homeowner?
Between incredibly low rates and increased conforming loan limits, 2020 is the perfect year to attain your homeownership goals. But don’t make the mistake of hiring just any lender. Our mortgage consultants will create a truly customized home loan based on your needs.
At American Financing, we simplify the mortgage process while keeping you informed from start to finish. There’s never any pressure and there are no upfront fees — it’s what separates us from other mortgage companies. Schedule an appointment online or reach out to American Financing at (800) 910-4055.