Tis' the Season (For Increased Loan Limits)
Each year toward the end of the year, new year loan limits are announced for conventional and government loans. While VA loans have had their caps removed (a huge benefit for VA borrowers!), FHA and conventional loans are capped each year based on what median home values are doing around the country. Each county has it's own loan limit based on median home value, and limits can vary substantially between conventional and FHA loan limits.
Last year, new limits were announced on 11/27, so if history is an indicator, we should receive word on updates for 2020 loan limits VERY soon. So why write this blog if the news is around the corner?
For the real estate community and home buyers just beginning their home search, loan limit increases can be of tremendous value if you're looking to get the best rate and pricing on a home loan when buying in a price range that puts you near the loan limit.
For example, with loan limits at $484,350, someone buying a home with conventional financing can put as little as 5% down. That means a home purchase price of $509K and change if trying to put down the minimum with a FICO down to 620. Go above that loan amount, and now you're in the jumbo world, where FICO scores need to be higher, debt/income restrictions are tighter, and more is often needed for a down payment.
The rough expectation (again, considering median home value increases) is that loan limits will be bumped up about 5% - so that $484K would be come up to about $508K, or the loan amount needed to put 5% down on a $535,000 home - so about $30,000 more in buying power to use the same loan program.
In expensive counties, there is special "high balance" pricing that allows conventional and government loan products to be used in excess of standard loan limits -as these amounts climb, it also helps buyers in those tiers avoid jumbo loan restrictions.
So if you're a buyer or an agent with buyers starting the process in those price points teetering between conventional and jumbo financing - it's important to keep in mind that help should be on the way soon. And the best news of all is that once loan limits are announced, most (this is important to note...because not ALL do) lenders will allow loans to immediately begin to be locked and processed under the new loan limits, as long as the closing date ends with 2020.