Lending limits are an important topic for homebuyers to understand. Many mortgage types in the USA are funded or issued by government entities such as Fannie Mae and the Federal Housing Authority (FHA). These government entities often set loan limits, or limits on how much money a buyer can borrow in order to purchase their home. In late 2019, the FHA and the Federal Housing Finance Agency (FHFA) both issued changes to their loan limits that you should be aware of.
FHA LOAN LIMITS
As of December 3rd, 2019, the Federal Housing Authority (FHA) has raised maximum lending limits for its conforming loans. The FHA issues mortgage loans designed specifically to help more Americans buy their homes. This means that FHA loans typically have less-strict requirements than other loan types. By raising its maximum loan limit, the FHA has not only kept current with rising housing market prices but also helped extend the dream of homeownership to more people.
FHA Loan Limit Changes for 2020
Because the housing market can be so radically different depending on location (think of the difference in average house price in San Francisco vs. a small town in Kansas), the FHA takes location into account when setting loan limits. It also takes building size into account.
For 2020, the standard FHA loan limit for buying a single-family home is $331,760, while in more expensive markets the limit is $765,600. This means that if the house you want to buy is more expensive than the limit that applies to your area, you probably won’t be able to get an FHA loan. For two-family homes, the limits are $424,800 for standard markets and $980, 325 for high-cost areas. The numbers scale up to there, with four-family dwellings being the largest properties available for purchase with an FHA loan.
FHA Reverse Mortgage Changes for 2020
The numbers given above apply to forward mortgages only. A forward mortgage is a standard home loan, and it’s the opposite of a reverse mortgage. Reverse mortgages allow homeowners who have mostly paid off their home loans to draw from their equity. You must be at least 62 years old to qualify for a reverse mortgage, no matter how long you’ve lived in your home and how much equity you’ve built.
The FHA also issues reverse mortgages, and its loan limits for 2020 apply to this loan type as well, with the new limit set at $765,600. Only single-family homes are eligible for FHA reverse mortgages, also known as Home Equity Conversion Mortgages (HECM).
FHFA LOAN LIMITS
As of November 26th, 2019, the Federal Housing Finance Agency (FHFA) has raised maximum lending limits for conforming conventional home loans from Fannie Mae and Freddie Mac. This number is important because it determines what type of mortgage loan many borrowers can obtain based on the price of the property they’re buying.
It’s important to note that the FHFA does not issue loans the way the FHA does. Rather, the FHFA oversees the activities of Fannie Mae and Freddie Mac, which are both government-sponsored enterprises that purchase and guarantee mortgages. Like the FHA, these two entities help ensure that homeownership stays in reach for as many Americans as possible.
Exceptions and Other Differences
As with FHA loan limits, FHFA loan limits are tied to the buyer’s future location. Maximum FHFA conforming loan limits can vary by county, and they’re generally higher than FHA loan limits. The lowest limit amount for 2020 is $510,400, but the FHFA makes allowances for higher-cost areas by setting a higher limit for conforming loans. For example, King County, Washington, which is home to Seattle, has a 2020 conforming loan limit of $741,750, which is $231,350 more than the standard conforming loan limit.
These higher limits factor housing prices into account, not population or other data. Multnomah County, Oregon, which is home to Portland, has the standard 2020 conforming loan limit of $510,400. This means that you may need a jumbo loan if you wish to purchase a property that costs more than the conventional conforming limit within Portland metro area.
Buyers should also be aware that conforming loan limits for 2020 scale up based on the number of units in the property they’re buying. In Multnomah County, the limit for a 2-unit property is $653,550, while a 4-unit property carries a $981,770 limit.
Focused on You: Getting Questions Answered
Have questions about what all this means, or need to get clarity on precisely when these limits take effect and how that might affect pre-approvals? Your Mortgage Specialist will be happy to answer questions. If you aren’t yet working with a Mortgage Specialist, contact your local branch to get the expert help you need.