Loan Limits to Change in 2020
Each year, just like clockwork, the new conforming loan limits are announced for the following year. There is a method to making these adjustments, as dictated by the Federal Housing Finance Agency, or FHFA. Housing prices are compared year-over-year from 2018 to 2019, specifically in the third quarter. The median housing price is reviewed, and the new limits are announced in late November.
The increase came in at 5.38% year-over-year. That means the new conforming loan limits for next year will increase by approximately 5.38%. For most of Central Texas, the new conforming loan limit has been increased to $510,400, up from $484,350 in 2019. These are for single-family homes. For two-unit, three-unit, and four-unit residential properties, the limit amounts change to $653,550, $789,950, and $981,700 respectively.
Loans that meet these conforming guidelines are then eligible for sale in the secondary market. Nearly two out of every three single-family residential home loans issued fall into the conforming category. They’re so-called because they “conform” to guidelines set forth by mortgage giants Fannie Mae and Freddie Mac. This volume also results in better rates compared to other types of loan programs. Loan amounts that are above these conforming limits are referred to as “jumbo” loans which will have slightly higher interest rates.
This is important because as home values increase here in Central Texas, so too do loan amounts, which results in slightly higher monthly payments. At the same time, however, we’ve been enjoying relatively low-interest rates for an extended period of time, which keeps the impact of higher loan amounts marginalized. A combination of higher conforming loan limits with competitive interest rates is a boon for borrowers.
As a result of these conforming increases, loan limits for other programs will rise as well. FHA loan limits, for example, are set at 65% of the conforming loan limit for most areas. FHA limits take into consideration the median home value for each county. This can mean an FHA loan limit might be higher in one county compared to another nearby county. In our Metropolitan Statistical Area, or MSA, the new FHA loan limits for 2020 are $404,800, $518,200, $626,400 and $778,450. These 2020 limits apply to single-family, duplex, triplex, and fourplex properties respectively. Note, all FHA purchases must be owner-occupied. In the instance of a multi-unit property, the borrower must occupy one of the units as a primary residence.
FHA loans are one of three programs that are government-backed. The other two are the VA and USDA programs. VA loan limits follow the conforming limits while USDA loan limits are determined by the area and the total household income of those over the age of 18 living in the home.