As of January 1, 2020, you can now purchase a home property that costs even more money than you originally planned to spend — about five percent higher — with the help of a very popular mortgage product.
It could be advantageous for shoppers who need that extra bump to attain the home they really want. Some homes fall by the wayside for eager buyers who know they can financially manage the monthly payment on a house that’s selling for $20,000 – $25,000 more than what the U.S. government’s price ceiling will allow them to buy. That frustration will soon be remedied.
The “conforming loan limits” for both conventional mortgages and FHA mortgages (Federal Housing Administration) were just raised by the federal government’s secondary mortgage market regulator (the Federal Housing Finance Agency) for 2020. For now, we’ll focus on conventional mortgages.
The FHFA sets and regulates standards for Fannie Mae and Freddie Mac, the two government sponsored enterprises (GSEs) that help make homeownership come true for thousands of buyers every year. The conforming loan limit helps the GSEs not take too much risk in the mortgage market since historically they are the U.S. taxpayer backstop for mortgage investors in the financial markets.
What does it mean to credit union members? It can be great news for all types of buyers, and it’s especially juicy news for certain first-time purchasers. Depending on your debt-to-income ratio, FICO score and other financial variables in your situation, you may be able to be approved for an even higher mortgage amount. You might decide to leverage this new benefit, as it could work to your advantage in a particular homebuying circumstance.
With home prices continuing to rise over the long term, the maximum conforming loan limit is now $510,400 for most counties in the nation, and up to $765,600 in very particular areas designated as “high cost” regions. Many coastlines and metropolitan areas fit into this higher amount (called a high-balance conforming loan). Average home prices rose about five percent annually from late 2018 – late 2019, and federal law dictates that conforming loan limits must go up in tandem.
The previous conforming loan limit for 2019 ($484,350) has been on the rise since 2016 as median-priced property values keep increasing year-over-year nationwide. It was $417,000 in 2016, which means as of January 1, 2020, it will have gone up $93,400 (or 22 percent). Click here to see a U.S. map of all county-based conforming loan limits.
Some conventional mortgage programs that are “conforming” will allow buyers to put three percent down while others can require anywhere between five and 20 percent. With a new lower-end conforming limit of $510,400, a down payment is somewhere between $15,300 – $102,000 depending on the lender.
The new conforming loan limit doesn’t mean your housing purchase is more affordable. Your monthly payment will still be higher — but not by much. That’s the bright side. It means your capacity to own a marginally higher-priced home depending on the neighborhood and your heart’s desire just increased exponentially.
It can be a nice boon in your search efforts and mortgage planning if you need that much-needed step higher to reach the next level in home prices. It’s a flexible tool to help you afford more house for a nominally higher monthly payment.
Ask a trusted mortgage professional at your credit union for more details. A five percent jump in what you can afford (about $26,000 according to the new limit) may be just the amount you need to fine-tune your hunt for the right property.