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Loan limits increase for FHA, VA, conventional mortgages

Erik J. Martin
The Mortgage Reports contributor

Loan limits get a boost in 2020

Mortgage loan limits are changing in 2020.

Borrowers will be able to take out bigger loans backed by FHA, VA, Fannie Mae, and Freddie Mac.

If you’re buying a single-family home in 2020, most areas of the U.S. now let you borrow up to these limits:

  • Conventional loan — $510,400
  • FHA loan — $331,760
  • VA loan — No loan limit

But you might be able to borrow more if you live in a medium- to high-cost area.

Confirm your actual loan limit using the link below.

Verify your new loan limits for 2020 (Feb 16th, 2020)

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Conventional loan limits for 2020

The Federal Housing Finance Agency (FHFA) recently announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2020. 

  Low-Cost Area Medium-Cost Area High-Cost Area
1 Unit $510,400 $510,401-$765,599 $765,600
2 Units $653,550 $653,551-$980,324 $980,325
3 Units $789,950 $789,951-$1,184,924 $1,184,925
4 Units $981,700 $981,701-$1,472,549 $1,472,550

In most of the country, the 2020 max loan limit for one-unit properties will be $510,400. That’s an increase of over 5%, from $484,350, in 2019.

Loan limits also rose for multi-unit residences. For two-unit homes, it’s $653,550; three-unit homes have a limit of $789,950; and for four-unit homes, it’s $981,700.

These limits will vary by geographic location. There are actually low, medium, and high-cost areas.

In higher-cost markets, like Alameda County in California, 115% of the local median home value exceeds the baseline loan limit; therefore, buyers in these areas get even higher conforming loan limits.

Find conforming loan limits in your area

FHA loan limits for 2020

Likewise, the FHA recently upped loan limits for their mortgages nearly everywhere in the United States.

  Low-Cost Area Medium-Cost Area High-Cost Area
1 Unit $331,760 $331,761-$765,599 $765,600
2 Units $424,800 $424,801-$980,324 $980,325
3 Units $513,450 $513,451-$1,184,924 $1,184,925
4 Units $638,100 $638,101-$1,472,549 $1,472,550

Now, you can get an FHA-insured mortgage loan up to $331,760 for a one-unit property.

For a two-unit home, the FHA mortgage limit is $424,800; for a three-unit home, it’s $513,450; and $638,100 is the cap for a four-unit home.

As with Fannie Mae and Freddie Mac mortgages, the loan limits depend on geographic location. There are different limits for low, medium, and high-cost areas.

Find FHA loan limits in your area

VA loan limits are eliminated in 2020

Veterans, active-duty service members, National Guard members, reservists, and surviving spouses also have reason to celebrate.

That’s because VA loans from the U.S. Department of Veteran Affairs no longer have a maximum loan amount.

In other words, those who qualify can get a VA mortgage loan for any amount. Plus, no down payment is required.

Among the other perks, there is no mortgage insurance needed. And a VA loan comes with below-market interest rates. That adds up to an outstanding value for eligible borrowers.

The one thing to note is that VA loans still have an upfront funding fee, and those amounts have changed in 2020. VA borrowers in 2020 will pay the following funding fees:

Type of Military Service Down Payment First-Time Use Subsequent Uses
Active Duty, Reserves, and National Guard None 2.3% of loan 3.6% of loan
5% or more  1.65% of loan 1.65% of loan
10% or more 1.4% of loan 1.4% of loan

“This was a very good decision. It enables more veterans to utilize VA loans,” says Lawrence Yun, chief economist for the National Association of Realtors.

“Before they did away with VA loan limits, some did not even consider VA loans,” says Yun. “That’s because the values of the desired homes far exceeded the VA loan limit.”

Verify your eligibility for a VA loan (Feb 16th, 2020)

Why loan limits have increased

Yun says the reason why loan limits are higher for all these loans in 2020 is simple.

“Home prices have risen solidly. And last year’s loan limits were lagging behind this trend. The latest adjustments are just to keep pace,” he says.

Demetrius Lockett is a mortgage loan originator for Southeast Mortgage. He explains that conventional loan limits are based on FHFA’s House Price Index; this index increased by 5.38% since last year.

“Each year, the Housing and Economic Recovery Act requires the adjustment of this baseline conforming loan limit as the average U.S. home price fluctuates,” says Lockett.

“The baseline maximum conforming loan limit increased on January 1, 2020, by the same percentage as housing prices increased.”

Higher loan limits are good news for borrowers

Raising loan limits “was a very good decision,” notes Yun. “It allows more consumers to tap into mortgages with government backing. These mortgages generally carry lower interest rates.”

Yun continues, “Having government backing means consumers will pay around 30 basis points lower than a loan without government backing. That can translate into around $1,500 in savings a year on a $500,000 mortgage.”

If higher loan limits allow you to get a government-backed loan with lower interst, you could see huge interest savings over the life of your loan.

Leslie Shull, assistant professor of real estate at Sacramento City College, agrees.

“For the buyer, this is good news,” says Shull. “They can afford more home with less money down.”

To be precise:

And thanks to new 2020 loan limits, all of these loans are available in higher amounts than they were last year.

“Also, debt ratios for conventional, FHA, and VA loans are more lenient than for jumbo loans,” Shull adds.

Ultimately, virtually every borrower benefits.

“Any attempt by government agencies to make it easier for American citizens to obtain larger valued homes is a good thing,” says Lockett.

“Access to capital, especially as it relates to mortgage capital, has proven to be the cornerstone of the wealth-building plan for most families. This access needs to be preserved at all costs,” says Lockett.

Check your new loan limit today

The bottom line?

“It’s never been a better time to purchase a home that right now,” Lockett says.

“My suggestion is to stop paying someone else’s mortgage and set a goal to buy your own home this year.”

See what kind of loan you qualify for today.

Verify your new rate (Feb 16th, 2020)