Federal Lenders Increase Loan Limits
Thanks to the Federal Housing Finance Agency and the U.S. Department of Housing and Urban Development, buyers can now access higher Fannie Mae, Freddie Mac and Federal Housing Administration Loans.
The federally backed enterprises announced their 2020 loan limits in November 2019, with Fannie Mae and Freddie Mac increasing limits from $484,350 to $510,440, and the FHA raising limits to $314,827 to $331,760.
Fannie Mae, Freddie Mac and Federal Housing Administration loan increases are all mandated by the 2008 Housing and Economic Recovery Act (HERA), which was passed to protect consumers from falling prey to subprime mortgage loans.
HERA requires Fannie Mae and Freddie Mac baseline conforming loan limits to keep pace with the average, seasonally adjusted U.S. home price growth. According to the FHFA, home prices grew 5.38 percent from Q3 2018 to Q3 2019 — the same percentage used to calculate the 2020 baseline limit of $510,440.
However, buyers in high-cost areas where 115 percent of the local median home value exceeds the baseline conforming loan limit can borrow up to $765,600.
On the other hand, HERA requires FHA loans to align with forward mortgage limits by Metropolitan Statistical Area and county. FHA’s minimum national loan limit (floor limit) for low-cost areas where 115 percent of the median home price is less than the floor limit, increased from $314,827 to $331,760.
Meanwhile, the maximum loan limit (ceiling limit) for high-cost areas where the median home price is 150 percent of the national conforming limit ($510,440) increased from $726,525 to $765,600.
However, there are areas where FHA loan limits have decreased or are well above the ceiling limit. Eleven counties in New York, Idaho, Virginia, Tennessee, North Carolina, Texas and Minnesota will experience limit decreases of up to 51 percent, while buyers in Alaska, Hawaii, Guam and the Virgin Islands will be able to borrow up to $1,148,400 because of exorbitant building costs.
While the FHFA and HUD raised loan limits, the Department of Veteran Affairs eliminated loan limits altogether.
“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,” read an explainer by The Washington Post. “In previous years, borrowers were required to make a down payment of 25 percent if they took out a loan above the limit.”