At the end of each year, typically in the last week of November, the federal agencies governing mortgage financing (FHFA and HUD) announce new loan limits for the following year. These loan limits are based on the median home price for given markets, and for 2020, the loan limits increased for most of the country.
While the obvious result is “you can borrow more money” for certain loan programs, there are some ways this change could benefit you that you may not have considered.
For 2020, loan limits were removed altogether for the VA Mortgage loan program under the Blue Water Act of 2019. For Veterans, this means they can now borrow much larger sums of money to purchase higher end homes or to be more competitive in high priced markets while still using their VA benefit and enjoying loan features such as no down payment requirement and no monthly mortgage insurance, even when putting down less than 20%.
Is there a catch? Nope! Well, not really anyway. While loan limits have been removed, it’s important for veterans to know that some lenders may still have overlays and implement their own maximum loan limits (2 caps we’ve seen from investors are a cap at $1.5 million and another at $3 million), but MasonMac has no caps on VA Loans as we underwrite and approve loans directly to VA guidelines.
For FHA borrowers
For borrowers using the FHA mortgage program, they need to pay special attention to the area they’re getting a mortgage in. Each county has a different FHA loan limit, and the limits can vary substantially even in areas nearby to each other. With just a 3.5% down payment required, FHA loans are a great option for home buyers (especially those with less than perfect credit and less than 5% Down), and with FHA loan limits increased in many counties, it will allow for access to higher priced homes without a large down payment requirement or perfect credit.
For conventional loan borrowers
For borrowers using conventional financing, higher loan limits mean access to higher priced homes. In many markets where buyers don’t have a large down payment or have less than perfect credit, this should allow access to higher priced homes without the often restrictive set of guidelines that generally accompany jumbo mortgage financing. Let’s look at an example for a 10% down mortgage loan in markets using standard conventional loan limits. In 2019, that limit was $484,350. With that loan amount and a 10% down payment, the purchase price a borrower would be capped at is about $538,000. In 2020, that standard limit was increased to $510,400. That same 10% down would now allow a purchase of up to $567,000.
The same idea applies to “high balance” conventional loans in high price markets. Access to higher price points using conventional financing can be a huge win for buyers, usually resulting in less restrictive guidelines and better rates than Jumbo loans.
For home owners
For those already fortunate enough to own a home, it’s wise to consider these new loan limits offer access to more equity in a home. With home values at all time highs, household debt has also reached historic levels. With increased loan limits, borrowers have more options with cash out refinance loans for things like cash to pay debts or cash for home renovations.
Bottom line is that loan limit increases will give both buyers and home owners options through the new year to access more equity in their homes or to achieve home ownership despite rising values.
Want to know what your options are for the new year? Give your MasonMac loan officer a call to get started!