Caps on loans from Fannie Mae and Freddie Mac, as well as those insured by the Federal Housing Administration (FHA), have been raised in 2020. According to the Federal Housing Finance Agency (FHFA), maximum conforming loan limits on single-family homes have increased to $510,400 from $484,350 in 2019. This marks the fourth straight year that loan limits have increased.

Additionally, there are no longer any caps on mortgages financed through the Department of Veterans Affairs.

What Does This Mean for Homebuyers?

If you’re unfamiliar with the concept of conforming loan limits, it may be difficult to understand the implications of this year’s increase. Here’s a quick breakdown of what everything means.

Defining Conforming Loan Limits

The simplest way to think of a conforming loan limit is as a dollar cap. Essentially, it is the maximum size loan Fannie Mae, Freddie Mac or the FHA will back.

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In response to the U.S. housing crisis of 2008, the government created the Housing and Economic Recovery Act (HERA). HERA mandates that loan limits must be adjusted each year to reflect changes in the average price of a home in the U.S. This is called the baseline conforming loan limit.

While the majority of counties in the U.S. set the baseline as the max for home loans, there are some exceptions. Loan limits can vary based on regional differences in home value. For example, HERA dictates that the maximum loan limit will be higher in areas where 115% of the local median home value exceeds the baseline conforming loan limit.

Fun Fact: Mortgages that exceed the conforming loan limit are called jumbo mortgages.

How To Find Conforming Loan Limits In Your Area 

There are a couple of online tools that can help you determine what the conforming loan limits are in the areas you may be shopping for homes in.

For FHA mortgage limits, use this online tool from the U.S. Department of Housing: https://entp.hud.gov/idapp/html/hicostlook.cfm.

For a visual of the 2020 loan limits across the U.S., check out this interactive map: https://www.fhfa.gov/DataTools/Tools/Pages/Conforming-Loan-Limits-Map.aspx.

How It All Affects You

Essentially, the increase in conforming loan limits means that homebuyers have more “buying power.” If you’re allowed to borrow more money, you can theoretically purchase a more expensive home. However, keep in mind that simply because loan limits have risen does not mean you will automatically be approved for more expensive loans.

The Takeaway: Conforming loan limits have risen by $26,050 this year in response to a rise in the average price of a home in the U.S. This essentially means that homebuyers can seek out more expensive home loans. Veterans financing their home through VA loans also have much more freedom now that caps have been removed from VA loans.

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Disclaimer: These articles are intended for general informational purposes only and do not substitute the advice of qualified mortgage professionals. Please always consult your mortgage broker or loan officer when it comes to making decisions.

About Brookelynn Ruggirello

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