Industry News November 27 2019

Market Update: FHFA Announces Loan Limit Increases

The Federal Housing Finance Agency (FHFA) has announced that the conforming loan limits for Fannie Mae and Freddie Mac will be increased to $510,400 in 2020. That is up from the 2019 amount of $484,350.

This is the fourth year in a row that the FHFA has increased the maximum loan limits as a direct result of home prices increasing an average of 5.38% between 2018 and 2019. The conforming loan limits in 2020 will be increased by the same percentage, to $510,400.

In 2018, the FHFA increased the loan limits from $453,100 to $484,350 for 2019.

What is a conforming loan?

A conforming loan for Fannie Mae and Freddie Mac is a mortgage that is equal to or less than the total amount established by the FHFA. Fannie and Freddie create standardized guidelines and criteria to which mortgages must “conform”. In addition to the loan amount, uidelines for conforming loans may include the size of a homebuyer’s down payment, their debt-to-income ratio and credit score, documentation requirements, etc. 

For homebuyers with qualifying credit, these loans might be beneficial because of their lower interest rates.

High-Cost Areas

The new ceiling in high-cost areas will be $765,600, which is 150% of the baseline loan amount of $510,400. A high-cost area is where 115% of the local median home values exceed the baseline conforming loan limits. The Housing and Economic Recovery Act of 2008 (HERA) establishes the maximum loan limits in those areas.

Basically, HERA recognizes that certain counties have much higher home values and the typical conforming loan limit would not work there. You can view a map of loan limits by county here.

A Summary

  • Conforming loan limits have increased by nearly $100,000 since 2016
  • The maximum loan limit is increasing from $484,350 to $510,400
  • The ceiling in high-cost areas is $765,600

If you have any questions about how this change to the maximum conforming loan limits may affect you, we are happy to help answer your questions. A home is the biggest purchase of your life, and you deserve a knowledgeable advisor you can trust.

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