2020 loan limits increase to $510,400 for most areas

Conforming (Fannie Mae and Freddie Mac) loan limits are up — way up — and it could benefit home buyers and refinancing households in 2020.

According to the nation’s housing agencies, conventional / conforming loan limits were not keeping pace with the trend to “buy bigger” as this decade nears its end.

Home buyers and refinancing homeowners can finally get a bigger mortgage — up to $510,400 nationwide, and even more in high-cost areas.

That comes as welcome relief. Although jumbo loan mortgage rates are a screaming deal, they are difficult to qualify for. Many applicants would rather stay within conforming limits — especially if they don’t have perfect credit and a large down payment.

Now, home buyers can get a very large mortgage at ultra-low rates and with a down payment as low as 3%.

What is a mortgage loan limit?

A loan limit is the maximum amount a lender will approve under certain guidelines.

There is not just one loan limit, but many. Conventional mortgages adhere to one set of loan limits, and FHA another. VA loans are doing away with limits altogether in 2020.

USDA loans rely on income limits instead of maximum loan amounts.

In the world of conforming loans, Fannie Mae and Freddie Mac limit “borrowable” amounts to keep their nationwide programs available to those who need them.

For instance, Fannie Mae doesn’t want a $10 million loan going through its system. That’s a lot of risk wrapped up in one transaction, and the agency would rather issue many smaller loans to more home buyers.

Loan limits are a means of standardizing loans nationwide. That gives lenders and investors more confidence in these loans, which pushes mortgage rates down for consumers.

Fortunately, loan limits are on the rise in 2020, and may head even higher in years to come.

Conforming loan limits for 2020

Lending limits for conventional loans got a nice boost this year. They are up over 5% since 2019 — for a dollar-amount increase of over $26,000 — for the standard 1-unit home.

Multi-unit properties got a similar boost. Standard 2020 loan limits are as follows.

• 1-unit homes: $510,400
• 2-unit homes: $653,550
• 3-unit homes: $789,950
• 4-unit homes: $981,700

Keep in mind that these are only “standard” limits. In higher-cost areas, buyers get significantly higher conforming loan limits.

Limits in these areas can range anywhere from the above-stated regular limits to the following increased ones:

• 1-unit homes: $765,600
• 2-unit homes: $980,325
• 3-unit homes: $1,184,925
• 4-unit homes: $1,472,550

Areas such as Alameda County, California, Arlington, Virginia, and Jackson, Wyoming are at the top of the limits, while cities like Seattle, Washington and Baltimore, Maryland fall between the “floor” and the “ceiling.”

What if my loan is over the conforming limit?

Remember that the conforming loan limit applies to the loan amount, not the home price.

For instance, a buyer is purchasing a 1-unit home in Boulder, Colorado where the limit is $644,000. The home price is $1 million, and the buyer is putting $450,000 down.

This buyer is eligible for a conforming loan. The final loan amount is $550,000 — well within limits for the area.

Still, many applicants will need financing above their local limit. For them, a number of solutions exist.

Perhaps the most cost-effective method is to choose a piggyback loan. This describes a loan in which a first and second mortgage are opened simultaneously.

Typically, this structure is used to avoid private mortgage insurance. A buyer can get an 80 percent first mortgage, 10 percent second mortgage, and put 10 percent down.

However, these loans are available for those putting 20 percent down or more. Here’s how it would work.

• Home price: $700,000
• Local conforming limit: $550,000
• Financing needed: $600,000

The buyer could structure his or her loan as follows.

• 1st mortgage: $550,000
• 2nd mortgage: $50,000

The home is purchased with a conforming loan and a small second mortgage. The first mortgage may come with better terms than a jumbo loan, and the second mortgage offers a great rate, too.

What if I’m getting an FHA loan?

FHA loans come with their own loan limits. Currently, FHA limits for 2020 are as listed below.

• 1-unit homes: $331,760
• 2-unit homes: $424,800
• 3-unit homes: $513,450
• 4-unit homes: $638,100

You might notice that FHA’s limits are considerably lower than conforming limits. That’s by design.

The FHA program is meant for home buyers with moderate incomes and credit. But the FHA also suits home buyers in expensive locales. FHA limits reach $765,600 in high-cost areas within the continental U.S. and a surprising $1,148,400 for a 1-unit home in Alaska and Hawaii.

What are today’s mortgage rates for these loan limits?

Mortgage rates for conforming loans are stellar, which is why so many buyers consider a conforming loan before using jumbo financing.

Get a rate quote for your standard or extended-limit conforming loan. Compare to jumbo rates and piggyback mortgage rates to make sure you’re getting the best value.