Real Estate Talk: Conforming loan limits rise again

Ryan Parker
Ryan Parker

Beginning Jan. 1, 2020, conforming loan limits rose for mortgages backed by Fannie Mae and Freddie Mac across most of the country. Limits increased by 5.38% to $510,400.

The 2019 limit was $484,350. Data from Federal Housing Finance Agency (FHFA) shows that home prices increased by an average of 5.38% between the third quarter of 2018 and the third quarter of 2019.

With the change the baseline maximum conforming loan limit in 2020 increased by the same percentage, resulting in the $510,400 figure as the new baseline.

For areas in which 115% of the local median home value exceeds the baseline conforming loan limit (high cost areas), the Housing and Economic Recovery Act (HERA) sets a “ceiling” of 150% of the baseline loan limit. In these counties considered “high-cost,” the ceiling limit is now $765,500. 

It was the fourth straight year the FHFA increased the limits after not increasing them from 2006 to 2016.

Since 2008, the federal HERA law requires the FHFA to adjust loan limits for Fannie and Freddie, which are the government-sponsored enterprises (GSEs) that help ensure the flow of credit in the mortgage system. 

The GSEs do not lend money to the public directly. Instead, they guarantee third-party loans, and purchase loans in the secondary market, thereby providing liquidity for lenders and financial institutions.

So what does all this “mortgage talk” mean for homebuyers in the Roaring Fork Valley?  

Simply put, buyers can qualify for more. With the increase in these loan limits, buyers can purchase higher-priced homes without getting into a “Jumbo” loan, which has stricter underwriting guidelines and requires a higher down payment.  

In fact, Garfield and Pitkin counties are considered high cost areas and have a limit of $765,600, followed by Eagle County, which comes in just under with a loan limit of $750,950. Mesa County is at the baseline maximum of $510,400.

Additionally, and despite the common misconception, there are several low down payment options available.  Conforming loans have down payment options as low as 3% for loans under $510,400; down payments for FHA loans can be as low as 3.5%; and USDA and VA loans are available with $0 down — with FHA and VA loans capped at the high cost limit for each county. 

Recent changes in Fannie Mae’s underwriting guidelines, along with these increases in loan limits, will afford potential homebuyers in our area a little more flexibility as home values continue to increase.  

With a limited rental market, and rental rates continuing to increase, this may be a great time to explore the option of purchasing a home.  

Ryan Parker is a Senior Loan Officer with Bay Equity Home Loans. Parker can be contacted at rparker@bayeq.comor 970-309-6850.

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