Mortgage Loan Limits to Increase in 2020

Thinking about buying or refinancing a house in 2020? If so, there’s good news in your future.

Getting a bigger mortgage has become easier. The Federal Housing Finance Agency (FHFA) recently announced an increase in the conforming loan limit of home loans acquired by Fannie Mae and Freddie Mac. This particular change only affects conforming conventional loans, but you’ll see changes to loan limits on FHA and VA loans, too.

If you’re in the market to purchase a home or refinance your existing loan, here’s a closer look at what you can expect.

What are the New Conforming Loan Limits?

In 2020, the new general loan limit for conforming loans will increase by more than 5.3% for a one-unit, single-family property. The new loan limit will be $510,400 in most parts of the country. In higher-cost areas like Alaska and Hawaii, the new conforming loan limit will increase to a maximum of $765,600.

It’s important to note, though, that conforming loan limits vary depending on the type of property. Therefore, the limit is higher for two, three and four-unit homes.

The general 2020 conforming loan limit per property type is as follows:

  • $510,400 for a one-unit home
  • $653,550 for a two-unit home
  • $789,950 for a three-unit home
  • $981,700 for a four-unit home

In high-cost areas, the maximum 2020 conforming loan limit per property type is as follows:

  • $765,600 for a one-unit home
  • $980,325 for a two-unit home
  • $1,184,925 for a three-unit home
  • $1,472,550 for a four-unit home

If you’d like to search for the limit in your county, visit the resources provided by the FHFA.

Why are Higher Loan Limits Good News?

An increase in conforming loan limits is excellent news if you live in an area where home prices are on the upswing. If the price tag for a house is higher than a conventional conforming loan limit, you’ll likely need a non-conforming loan (jumbo loan).

Jumbo loans are not backed or guaranteed by Fannie Mae or Freddie Mac. Therefore, lenders who approve jumbo loans typically keep these mortgages as part of their own portfolio. If you’re looking at a luxury property, you can still find financing for a pricier home.

Jumbo loans usually have higher down payment requirements, compared to conforming loans, plus stricter requirements for approval. You typically need exceptional credit, and your lender may require at least three months of mortgage payments in cash reserves at closing. Also, jumbo loans may have slightly higher interest rates.

The bottom line is that conforming loans are simply easier to get. And with conforming loan limits now over $500,000, purchasing or refinancing a pricier property has become much easier for qualified buyers.

FHA and VA Loan Limit Increases 2020

If you’re thinking about getting an FHA loan, these loans also have loan limits, but they’re lower than conforming loans. FHA limits will also increase in 2020:

  • $331,760 for a one-unit home
  • $424,800 for a two-unit home
  • $513,450 for a three-unit home
  • $638,100 for a four-unit home

In high-cost areas, FHA loan limits will range from $765,600 to $1,472,550, depending on the location and number of units. You can search for the FHA loan limits in your area here.

VA loans are guaranteed by the Department of Veterans Affairs, and the VA does not limit loan amounts for veterans with full entitlement. The VA will provide a 25% guarantee up to the lesser of the purchase price or appraised value. (Please note that market conditions are capping most VA loans at around $1 million).

USDA loans do not have loan limits; however, income limits required by the USDA effectively limit the available loan amount to around $300-$400k. (Check with a loan officer to learn more if you’re considering a USDA loan for a property located in a rural area).

Bottom line

With higher loan limits in 2020, it’s a fantastic time to think about a new purchase or a refinance. Contact one of our loan experts to explore your mortgage financing options. Give us a call or fill out the contact form to get started.

Cherry Creek Mortgage Company is not endorsed by, nor acting on behalf of or at the direction of the U.S. Department of Housing and Urban Development, Federal Housing Administration, U.S. Department of Agriculture, Veterans Administration or the Federal Government.