The New Year is upon us and if you’re going to start the New Year off jumping into the homebuying market. 2019 is just now appearing in our rearview mirror. There were several changes made which will all take effect on January 1, 2020. Many of the changes are more like “tweaks” to existing regulations while others are a bit more impactful. If you’re in the market for a new home, these changes can help you stay prepared.
Conforming Loan Limits
The first thing we’ll notice is the new conforming loan limits. This is important because conforming loans have slightly better interest rates compared to other programs. Nearly two out of three residential home loans made today for a new home are conforming. They’re labeled “conforming” because they conform to guidelines set by Fannie Mae and Freddie Mac. Each October, the Federal Housing Finance Agency, or FHFA, compares the median home values across the country with the previous year’s number. If there is a year-over-year increase, the conforming loan limit will increase by the same percentage. If there is no change or the values actually fall, no changes will be coming for the following year. In 2019 the conforming loan limit for most parts of the country was $484,350 but in 2020 that limit will increase to $510,400. In places where property values are much higher compared to other parts of the country, the loan limits may be as high as $756,600 next year.
Shopping for a New Home with a VA Loan
Another big change new home buyers relates to VA loans. In the past, VA loan limits followed the loan limits set by Fannie Mae and Freddie Mac. In 2020 however, the loan limits vanish. Going forward in 2020, there are no VA loan limits but the lender must approve the VA loan using recommended credit guidelines, debt ratios and the like. Individual lenders may also impose their own VA loan limit for internal use. Also with VA loans, the Funding Fee will increase for single family homes and can vary based upon the number of times the applicant has used the VA home benefit as well as the type of loan. For a new home buyer taking out a 30 year fixed rate VA loan, the funding fee rises from 2.15% to 2.30%. This fee will continue to be rolled into the loan amount at the borrower’s discretion. The funding fee is a form of mortgage insurance which compensates the lender should the loan go into default. This incident is rare however as VA loans are some of the highest performing loan programs in the market for new home buyers.
FHA Loan Limits
FHA loan limit guidelines will also see some changes. For new home buyers, FHA limits are based primarily on the median home value for each Metropolitan Statistical Area, or MSA. The “floor” is set at 115% of the median home value for the area but can be as high as $331,750 going forward in 2020. FHA loans also come with a guarantee to the lender. There are two types of mortgage insurance in 2020, an upfront premium that is rolled into the loan amount and an annual premium paid back in monthly installments. Because these limits can change by area, if you’re a new home buyers looking at the possibility of taking out an FHA loan, give me a quick phone call and we’ll research the limits where you’re wanting to buy.
Finally, USDA loans will see some changes. USDA loans are used to finance rural properties. These rural areas are designated by the Census Bureau. The Census is taken every 10 years and the next national census will be taken in 2020. This will certainly reallocate areas deemed rural and populations migrate to outlying areas. Don’t expect any changes early on, as the census must be completed before eligible areas are identified.
These changes are issued by the respective agency but please note that individual lenders can impose additional guidelines as well. This can mean a lender can have additional conforming approval guidelines where another would not. That’s where I can help. Let’s talk about your situation and find the right program for your new home purchase in 2020.