Buyers who live in expensive housing markets and want to buy a costlier home have something to celebrate at the start of the New Year: Caps on loans insured by the Federal Housing Administration (FHA) and those acquired by Fannie Mae and Freddie Mac have been raised.
Rising home prices affect loan limits, which vary according to the median cost of homes in each county. By law, FHA loans are required to be limited at 115 percent of median home prices. FHA loans for most of the country will be capped at $331,760 in 2020, $17,000 higher than in 2019. In high-cost counties such as those in the Washington region, FHA loan limits will rise to $765,600 in 2020, an increase of $40,000 from 2019 limits.
Home prices rose 5.38 percent from the third quarter of 2018 and the third quarter of 2019, according to the Federal Housing Finance Agency’s (FHFA) House Price Index, which means loan limits for conforming loans with Fannie Mae and Freddie Mac have adjusted upward in 2020 by that same percentage.
For most of the United States, the maximum conforming loan limit for mortgages acquired by Fannie Mae and Freddie Mac for one-unit properties will rise to $510,400, up from $484,350 in 2019. In the Washington area and other high-cost housing markets, the conforming loan limit will rise to $765,600. Special exceptions are made for houses in Alaska, Hawaii, Guam and the U.S. Virgin Islands for different loan-limit calculations.
Buyers who need to finance houses above the loan limit for their area will need to apply for a jumbo loan, which generally has tighter approval guidelines and requires a larger down payment.
The maximum conforming loan limit for Freddie Mac and Fannie Mae will be higher in 2020 in all but 43 counties in the United States compared with 2018 because of generally rising home prices in most localities.
To check loan limits in a specific area, click here for FHA loans or here for Fannie Mae and Freddie Mac loans.
VA loans, which are available to active duty members of the military and veterans, no longer have limits on the amount of money a buyer can borrow without making any down payment. In previous years, borrowers were required to make a down payment of 25 percent if they took out a loan above the limit.
Limits varied according to the housing market. The borrowing caps were eliminated as of Wednesday for primary residences. Borrowers will need to qualify for the loan payments, and lenders are allowed to impose their own limits on the amount they will lend with a VA loan or require a higher standard of creditworthiness for a larger loan.
For more information on VA home loan benefit and eligibility, click here.