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New Loan Limits Blow the Roof Off Mortgages

Doug Whiteman
New Loan Limits Blow the Roof Off Mortgages

For the first time, a typical borrower in the U.S. can take out a home loan for over half a million dollars and still get the very best mortgage rates. You won't have to settle for one of the higher "jumbo" rates that come with larger loans.

Because of rising home prices, loan limits for government mortgage programs have been raised or even eliminated for 2020, meaning more borrowers can get mortgage deals — even if they live in pricey parts of the country.

'Conforming loan' limits are higher in 2020

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Buyers of higher-priced homes are finding better mortgage rates thanks to higher loan limits..

People buying higher-priced homes are finding that the limits on what are known as conforming loans have been raised for 2020 by the Federal Housing Finance Agency, which oversees the huge government-sponsored mortgage companies Fannie Mae and Freddie Mac.

Lenders count on them to insure or purchase their mortgages.

Fannie and Freddie back most home loans in the U.S., but they're willing to go only so far — up to certain thresholds. Loans that stay within the line are called conforming loans because they conform to the government's limits. Here's how the mortgage caps have changed this year:

  • In most U.S. counties: $510,400 in 2020 (was $484,350 in 2019).
  • **Throughout Alaska, Hawaii, Guam, and the U.S. Virgin Islands: **$765,600 in 2020 (was $726,525 in 2019).
  • In high-cost counties elsewhere: $765,600 in 2020 (was $726,525 in 2019).

In some places where home prices are high but not off the charts, conforming loan limits are in between $510,400 and $765,600. For example, in San Diego, the limit is $701,500; in Sacramento, California, it's $569,250.

Lenders prefer conforming loans and tend to charge higher interest for noncomforming, jumbo loans. A bank offering a 30-year fixed-rate mortgage on a conforming loan at 3.5% might have a 30-year fixed jumbo loan at 3.625%.

Take a look at today's best mortgage rates where you live.

FHA loan limits also are higher in 2020

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Limit have been raised on FHA loans, which help low- and moderate-income homebuyers.

The Federal Housing Administration, or FHA, also guarantees mortgages, primarily when borrowers have low or moderate incomes. FHA loans are a great deal because they require smaller down payments, and you can get one even if your credit score needs work.

Borrowers must pay mortgage insurance, which protects your lender in case you default on an FHA loan.

The FHA also backs loans within limits — which have gone up this year:

  • In most U.S. counties: $331,760 in 2020 (was $314,827 in 2019).
  • **Throughout Alaska, Hawaii, Guam, and the U.S. Virgin Islands: **$765,600 in 2020 (was $726,525 in 2019).
  • In high-cost counties elsewhere: $1,148,400 in 2020 (was $1,089,787 in 2019).

Why are the FHA loan limits for Alaska, Hawaii, Guam and the Virgin Islands so high? Well, because of high construction costs of in the remote states and territories. It's expensive to get materials to those places.

Use this calculator to see the kind of monthly payment you can expect from today's low mortgage rates.

VA loan limits are history in 2020

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VA loans allow veterans to buy homes with no money down.

Another popular government loan program is offered to U.S. service members, veterans and surviving spouses by the Department of Veterans Affairs. VA loans are a sweet benefit because no down payment is needed, plus they don't require mortgage insurance.

VA loans have gotten even better in 2020, because there's no longer a cap on the amount that can be borrowed with no money down. At the start of the year, limits were eliminated that last year narrowed the no-down-payment offer in most parts of the U.S. to mortgages no higher than $484,350.

But borrowers still have to pay the dreaded VA loan funding fee — up to 3.6% of the loan amount, which can be paid in cash at closing or rolled into the loan amount. For most people, there's no getting around it.

Check out today's lowest mortgage rates available where you are.