Well, that was fast. 2019, that is. Especially so during the holidays. It seems that the days leading up to Thanksgiving and then January 2 are a blur. The mortgage industry is no different as new guidelines will be in place for the new year. Some of these guidelines are a big deal and some not so much. But changes are coming.
The first big change is the conforming loan limit. Conforming loans are those that conform to guidelines set by Fannie Mae and Freddie Mac. Around two-thirds of all residential mortgage loans issued in the United States are conforming. Lenders approve loans using these standards and after doing so sell those loans to third parties, primarily Fannie and Freddie but other mortgage company buy loans as well. One of the primary conforming guidelines is how big the loan can be. In 2019, the conforming loan limit for most parts of the country was $484,350. But for 2020, the conforming loan limit will be $510,400. In areas where property values are much higher compared to the rest of the country, conforming limits can be as high as $756,600. Conforming loans will carry some of the most competitive mortgage rates compared to “non-agency” loans.
VA loans, those whose guidelines follow those set forth by the Department of Veteran’s Affairs, will also see some changes. Perhaps the biggest change is how big a VA loan can be. Historically, the VA loan marched in step with the conforming loan limits established by Fannie and Freddie. For 2020, that would mean VA loans would have a loan limit of $510,400. For 2020, that changes. VA loans will no longer have a limit and it will be up to the individual lender to set a loan limit for its borrowers. Lenders must still approve a VA loan application in the same way they’re approved today by verifying income, employment, eligibility and other guidelines.
Another change to VA loans is the Funding Fee. For 2020, the funding fee will be 2.3% of the sales price of the home, this is up from 2.15% in 2019. The funding fee is an insurance policy that compensates the lender in the case of default. This is rare however as VA loans are some of the highest performing in the industry. Other fees can change depending upon the number of times a VA loan was used and whether or not there was a down payment involved in the transaction. What does not change is the occupancy. VA loans can only be used to finance a primary residence.
FHA loans will also see some changes. For most parts of the country, the new FHA loan limit will be $331,760. FHA limits are set as a percentage of median home values for the area. This percentage is set at 115% of the median value. These areas, known as “metropolitan statistical areas,” are identified by the Census Bureau. Because home values will vary from one area to another, the FHA limits will also change. A quick phone call to your loan officer can tell you what the FHA limit is in the area you want to buy.
USDA loans will see some changes in 2020. USDA loans are used to finance rural properties. Because these areas are identified by population which is turn is reported by the Census Bureau, USDA loan limits will change as the new Census is performed. These new limits will be announced after the Census is taken.
Note, these are changes issued by their respective agency. Individual lenders may also have their own changes, referred to as “overlays” in addition to the ones noted above. In general, however, lending guidelines and regulations have somewhat stabilized over the years and obtaining a loan approval is much easier than say 10 years ago. There are changes coming, and they’re good ones.