The new year represents a time when home buyers can take advantage of new mortgage limits that help them get into a house that fits their needs.
In 2008, the Housing and Economic Recovery Act mandated that the conforming loan limit used by conventional lenders must be adjusted each year to reflect changes that occur in the average home prices. This law helps to ensure that homebuyers have access to loans that are reasonable given the home prices in their area.
The loan limits that a homebuyer must comply with will vary depending upon the type of loan they get. An FHA loan is insured by the Federal Housing Administration. The Department of Housing and Urban Development regulates the loan limits for this type of loan.
People may choose this type of loan to help overcome potential barriers to home ownership such as a low credit score.
Conventional loans are not insured by a federal agency. Instead, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Corporation (Freddie Mac) purchase and guarantee loans so that lenders can offer them to homebuyers.
Due to the differences between FHA and conventional loans, the limits set each year are not typically the same.
Conforming loan limits are those that Fannie Mae and Freddie Mac must follow.
The Federal Housing Finance Agency regulates those organizations and sets the loan limits each year. They do so by using the House Price Index Report that is issued by the Federal Housing Finance Board.
In 2019, it was found that house prices increased by 5.38%. This percentage is used to calculate the maximum conforming loan limit for 2020. The limit in 2019 for a single-family home was $484,350.
In 2020, it is $510,400. Keep in mind that this is the baseline limit for an average housing market. High-cost living areas can have different loan limits.