The Federal Housing Finance Agency (FHFA) just announced an increase in conforming loan limits at the end of 2020. While some counties may vary, this means that Fannie Mae and Freddie Mac Conforming Loans will be available to $548,250 next year. You can expect that FHA loans to also increase, but there is nothing definitive at this time on either program. VA Loans do not have a limit, but this change will impact pricing as VA loans sized at conforming limits and below are priced lower. The new loan limit is an over 7% increase over the previous limit. Many people know that there is a difference but do not realize the actual impact. Without getting too granular, this means that borrowers can take advantage of better pricing, more flexible guidelines and more loan program availability at this higher amount.
What Does Conforming Loan Limits of 2020 Mean for You?
Here is what the actual impact will be on homebuyers and homeowners:
Buyers
For buyers, this means you can shift your search criteria up a bit. Based on the exceptionally hot housing market, this is a big deal. Many buyers were finding themselves priced out of a good number of homes that they can now safety consider. I want to stress that as with any lending, this does not change your other underlying budgetary assumptions and you should not stretch beyond what is comfortable, but you now have choices that you did not have before.
Sellers
For sellers, you now likely have more potential buyers to whom you can market your home. It has been a sellers market for a while, so this will likely add fuel to the trend. It does not necessarily mean that you be able to sell your home for more that you could before, but rather that more people can buy at that price and it may sell sooner. You should still expect to have to price appropriately and to have the property ready to hit the market in the best shape possible.
Refinancing Homeowners
If you are looking to just refinance your rate, especially if you previously had a jumbo mortgage in this range, you may have new opportunity to lower your monthly costs. Not only are rates low due to a favorable market, but conforming rates track at a significant amount lower than a similar jumbo program. As with all loans, your particular financial situation will impact the actual delivered rate, so expect that to be unchanged. Regardless, it would make sense if you fit into this category to put in a call to a lender. If you need to pull cash out of the property, this means that you can pull out more cash and stay under the conforming limit. When money is as cheap as it is now, this makes sense for a lot of borrowers.
Divorcing Couples
Successfully navigating a divorce mortgage situation is all about having good information. If you are in the middle of a divorce and your current loan is around this amount, this change to the conforming mortgage loan limit may radically alter your assumptions, likely for the better. You need to at the very least revisit these assumptions with an experienced lender, preferably one credentialed in divorce mortgage lending, to assess the impact. You may find that a previously difficult or impossible transaction has now become viable. With low rates still expected for the foreseeable future, you do not want to wait until you have to refinance.
As you can likely surmise, there is no bad aspect of this news. Whether buying or refinancing, this change increases the opportunity for many borrowers to secure a better rate and, in some cases, get approved when they could not before. So, rejoice, 2021 is already looking better.
