FHA, Fannie Mae, Freddie Mac are all now backing larger loans
With the calendar now officially flipped to 2020, Fannie Mae, Freddie Mac, and the Federal Housing Administration are now backing larger mortgages than they were just a few days ago.
That’s because the 2020 loan limits for each of those agencies are now in effect. And each of the agencies’ loan limits are higher for 2020 than they were in 2019.
The agencies’ loan limits (the highest dollar amount they will back on a mortgage) are dictated by the Federal Housing Finance Agency’s home price index.
And that index rose in 2019, with home prices up nearly 5% over last year’s totals.
With higher home prices come higher loan amounts, and the FHA, Fannie Mae, and Freddie Mac all recently adjusted their loan limit amounts to account for higher home prices.
Those higher loan limits took effect on Jan. 1, 2020, meaning the FHA, Fannie Mae, and Freddie Mac are all now backing larger loans.
Fannie, Freddie 2020 loan limits
Fannie Mae and Freddie Mac are now backing loans that exceed $510,000, while the FHA is backing loans of just above $331,000.
At the end of November, the government-sponsored enterprises announced that the 2020 maximum conforming loan limit was increasing from 2019’s level to $484,350 to $510,400 for 2020.
That marks the fourth straight year that the FHFA has increased the conforming loan limits after not increasing them for an entire decade from 2006 to 2016.
In 2016, the FHFA increased the Fannie and Freddie conforming loan limit for the first time in 10 years, and since then, the loan limit has increased $93,400.
In 2016, the FHFA increased the conforming loan limits from $417,000 to $424,100. Then, the FHFA raised the loan limits from $424,100 to $453,100 for 2018. The FHFA then increased the loan limit from $453,100 to $484,350 for 2019.
And now, loan limits officially top $510,000.
The conforming loan limits for Fannie and Freddie are determined by the Housing and Economic Recovery Act of 2008, which established the baseline loan limit at $417,000 and mandated that, after a period of price declines, the baseline loan limit cannot increase again until home prices return to pre-decline levels.
Data from the FHFA showed that home prices increased by 5.38% on average between the third quarter of 2018 and the third quarter of 2019. Therefore, the baseline maximum conforming loan limit in 2020 increased by the same percentage.
There are some markets where homes are more expensive, and those areas have even higher loan limits. For areas in which 115% of the local median home value exceeds the baseline conforming loan limit, the maximum loan limit is $765,600 — or 150% of $510,400.
FHA 2020 loan limits
Meanwhile, the FHA loan limit also increased as of this week.
The 2020 FHA loan limit for most of the country is now $331,760, an increase of nearly $17,000 over 2019’s loan limit of $314,827.
FHA is required by the National Housing Act, as amended by the Housing and Economic Recovery Act of 2008, to set single-family forward loan limits at 115% of median house prices, subject to a floor and a ceiling on the limits. FHA calculates forward mortgage limits by Metropolitan Statistical Area and county.
FHA’s 2020 minimum national loan limit, or “floor,” of $331,760 is 65% of the Fannie, Freddie loan limit of $510,400. This floor applies to “low-cost areas,” which are counties where 115% of the median home price is less than the floor limit.
There are a number of counties (approximately 70) where the median home price far exceeds the FHA loan limit floor. Those areas where the loan limit exceeds this floor are considered “high-cost areas”, and HERA requires the FHA to set its maximum loan limit “ceiling” for those high-cost areas at 150% of the national conforming limit.
Therefore, for those approximately 70 “high-cost” counties, the FHA’s 2020 loan limit is $765,600, an increase of nearly $40,000 over 2019’s total of $726,525.
According to the FHA, the loan limit increased in almost all of the 3,233 counties where it backs loans, but there are a handful of counties where the loan limit actually decreased.
Per data from the FHA, there are 11 counties where the loan limit is smaller now than it was in 2019. In three of those counties (Dutchess County, New York; Orange County, New York; and Lincoln County, Idaho), the loan limit is decreasing by approximately 50%, due to the home price changes in those areas.