Last week, the big news in the mortgage and real estate finance community was that the Federal Housing Administration (FHA) announced that conforming mortgage loan limits would be increasing next year. While there's no #conformingloanlimits campaign and you likely didn't see a report on CNN, the news is not just crucial to mortgage lenders – it's big news for anyone potentially purchasing a home in 2020, and here's why:
Per the FHA (whose focus is middle-low-income and first-time buyers), "Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with origination balances below a specific amount, known as the 'conforming loan limit.' Loans above this limit are known as jumbo loans." Put merely, entities under FHA authority can only purchase loans up to a specific price. Anything higher will require private financing (riskier than selling to government-backed agencies) and could cost a bit more – a "jumbo" loan. Additionally, you'll likely face a higher downpayment for a jumbo loan.
The FHA's announcement came on the heels of a similar announcement by the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac. For the first time since the financial crisis, the federal government is both expressing confidence in the housing market and recognizing the need to support affordability in a market with tight supply, an incredibly important development for buyers who are required to fit FHA or Fannie/Freddie guidelines. On a practical level, the conforming loan limit is rising from $417,000 to $424,100, giving borrowers another $7K worth of wiggle room, which for many may make the difference between an affordable FHA loan with a low downpayment and a jumbo loan with a high downpayment requirement and stricter credit guidelines.
In addition to the loan limit of $424,100, there are a handful of locations throughout the country that are designated as "high cost" areas and will see their limits increase as well up-to $636,150. According to the FHFA, "In areas where 115 percent of the local median home value exceeds the baseline loan limit, the maximum area loan limit will be higher. HERA sets the maximum loan limit as a function of the area median home value while setting a "ceiling" on that limit of 150 percent of the baseline loan limit."
Again, while it may not seem like a big deal, that increase of about $7,000 could make a big difference when you apply for your next mortgage. Make sure to speak with your real estate agent and mortgage loan originator about the new changes and how you can take advantage in 2020!