Home loans divided into two categories: Conforming Loans and Non-Conforming Loans. And in the future, we will talk about the features of each one. But, as we head into 2020, conforming mortgage loan limits have increased. Here we explain what does that mean for borrowers looking ahead?
Conforming Loan Limits in 2020
Conforming mortgage loans also knowns as Conventional loans are loans that are backed by Fannie Mae and Freddie Mac, and these make up the majority of mortgage loans in the United States. In 2019, the limit on a single unit property in most of the United States was $484,350. For 2020, the Federal Housing Finance Agency (FHFA) announced that new mortgage loan limits would be increasing to $510,400. In areas where the cost of living is higher, and the median home values are greater than 115% of the conforming loan limits, the limit has been raised to $765,600. Most of these higher-cost areas are located in Washington, California, and New York.
FHA Loan Limits in 2020
Much like conforming mortgage loan limits, FHA (Federal Housing Administration) and announced they are also increasing the mortgage loan limits in 2020, in almost all of the United States. In 2019, we saw the FHA loan limit for most areas at $314,827. In 2020, that is rising to $331,760.
The number is determined as a percentage of the new conforming loan limits. For the higher-cost areas, the limit will match the new conforming loan limit for higher-cost areas, at $765,600.
What this Means for Home Buyers
The new mortgage loan limits for 2020 on conforming and FHA loans help borrowers be able to keep up with the rapidly changing housing market. Home prices are on the rise, so borrowers might need to take out a higher loan amount to purchase a property.
The new mortgage loan limit increases usually correspond with the percentage home prices have risen based on the House Price Index report. To buy a home outside of the conforming loan limits, you would need to take out a jumbo loan. There are no limits on jumbo loans, but the amount you can take out depends on what your lender is willing to lend, as well as your credit history and other factors, since these loans are not backed by Fannie or Freddie.
Heading into 2020 with increased mortgage loan limits and strong predictions for positive mortgage rates, borrowers will now have more options of homes to purchase with the increased loan limits.
The new mortgage loan limits are adjusted every year to reflect the changes in the housing market and are based off changes to the average price of a home in any given area. Be sure to contact a mortgage loan officer today to get pre-approved and ensure you understand the entire mortgage process.