Many homebuyers can now get a Conventional mortgage rather than a Jumbo mortgage.
Fannie Mae and Freddie Mac have announced their new (and higher) conforming loan limits for 2020 and the good news is that more home buyers will be able to purchase a home via a conventional mortgage than being forced to obtain a Jumbo mortgage which often requires a larger down payment and has higher mortgage rates.
Fannie Mae and Freddie Mac will let mortgage borrowers nationwide take out home loans over $500,000 in 2020.
The Federal Housing Finance Agency announced that it will increase the limit on conforming loans, meaning mortgages that adhere to the standards imposed by Fannie Mae and Freddie Mac to a maximum of $510,400 nationwide. In high-cost areas, the maximum loan limit for mortgages acquired by Fannie Mae and Freddie Mac will be $765,600.
By law, conforming loan limits must be adjusted to reflect changes in home prices across the U.S. The FHFA noted that its data show home prices had increased on average 5.38% between the third quarters of 2018 and 2019. Therefore, the loan limits increased by that percentage. In high-cost areas, the law allows loan limits to be set 50% higher than the baseline level nationally. Special provisions also establish different loan limit calculations for Alaska, Hawaii, Guam and the U.S. Virgin Islands.
This is the fourth consecutive year that the conforming loan limit has increased. Between 2006 and 2016, the FHFA held loan limits at $417,000. When loan limits were increased for the first time in 2017, it sparked enthusiasm across the mortgage industry as lenders expected it could lead to more people seeking home loans, because the lower loan limit forced many people to get jumbo loans that don’t always offer competitive financing.
For consumers, the higher limits are an indication that while home prices are still heading higher which further supports home ownership as a valuable financial tool.
Source: Fannie Mae, Freddie Mac, National Association of Realtors.