Conforming Loan limits have been increased for 2020 which is great news for homeowners and homebuyers. The base line loan amounts are as follows; 1-unit $510,400, 2-unit $653,550, 3-unit $789,950 and a 4-unit property it's $981,700. High cost counties like Los Angeles, and San Francisco have higher amounts.
2020 Conforming Loan amounts will go a long way to helping more people achieve their goals.
But before we get to the details of the new conforming loan amounts and its potential impact upon the market lets discuss understand more about Conventional Loans and why they are considered as conforming loans.
About Conventional Loans:
This type of loan is not a government insured program like FHA (Federal Housing Administration), USDA (U.S. Agriculture Dept.) or VA (Veterans Affairs Dept.) loan programs. (Non-Conventional Loans are loans guaranteed or insured by the government).
There are some specific guidelines prescribed by two government sponsored entities, namely, Freddie Mac & Fannie Mae that Conventional Loans are required to follow. In the market place, Conventional Loans out number non-Conventional loans There are two types of Conventional Loans, namely, non-conforming & conforming. The latter type is to meet guidelines as specified by Freddie Mac & Fannie Mae. On the other hand, these guidelines are not met by non-conforming loans, nor they are purchased by Freddie Mac or Fannie Mae.
2020 Conforming Loan limits:
FHFA (Federal Housing Finance Agency) during November 2019 had announced optimum conforming loan limits on mortgages for 2020 that will be acquired by Freddie Mac & Fannie Mae. As mentioned above the baseline loan limit, starting January 2020, in most counties for single residence, throughout the United States is $510,400 from $484,350. New loan limit in high cost markets like San Francisco and New York City is set to increase from $726,525 to $765,600 in 2019.
Loans above such maximum amounts are referred as Jumbo Mortgage Loans. (As it fails to meet Freddie Mac or Fannie Mae’s loan requirements as well as comes with different underwriting guidelines, it is considered to be non-conforming loan). Private institutions or lenders fund them.
Benefits derived from new loan limits:
Limits on baseline conforming loan as per HERA (Housing & Economic Recovery Act) is adjustable annually, so as to reflect changes in average home price in the U.S. Conventional Loan borrowers having good amount of money to spend are provided with variety of homes to select from to purchase. They also can stay competitive during the bidding process against other potential homebuyers.
Advantages derived from Conventional Loans
There are numerous benefits offered on Conventional Loan:
- Less restrictions when compared to government backed loans like USDA (rural area) and VA (no military affiliation).
- Minimum down payments like 3%.
- Upfront mortgage insurance not required.
- After achieving 20% equity, PMI (Private Mortgage Insurance) is cancellable.
- When compared to USDA, VA or FHA loans, less strict property and appraisal requirements.
- Reduced interest rate due to high credit scores.
- Faster loan processing.
- Varying term lengths between 10 & 30 years.
Make sure you discuss all the loan options with your loan officer so you can make an informed decision as to which loan is best for you.
Loan Officer Kevin O’Connor
JB Mortgage Capital, Inc.
CA BRE #01499872 – NMLS #247447