FHA borrowers will get a bigger budget when it comes to buying a home. The Department of Housing and Urban Development (HUD) recently announced an increase in FHA loan limits for most U.S. counties in 2020.
The 2020 FHA “floor” loan limits for single-family housing in the majority of the country rises to $331,760, almost $17,000 more than the 2019 maximum of $314,827. Some 70 counties, with the costliest home prices, will get a higher “ceiling” at $765,600, almost $40,000 above the $726,525 limits in 2019. These changes go into effect on Jan. 1, 2020.
National conforming loan limits for Fannie Mae and Freddie Mac are also rising in 2020 to $510,400, making FHA’s floor limits 65 percent of their conforming-loan counterparts.
Home prices accelerating
The hike in limits is due to swelling home prices. In the third quarter of 2019, existing single-family home prices rose 5.1 percent to $280,200 from a year earlier, according to data from the National Association of Realtors (NAR).
The National Housing Act, as amended by the Housing and Economic Recovery Act of 2008 (HERA), mandates that the FHA set single-family forward loan limits at 115 percent of median home prices.
HERA rules state that the FHA must set floor and ceiling loan limits based on the loan limit set by conventional mortgages backed by Fannie Mae and Freddie Mac. In 2020, the national conforming loan limits for Fannie Mae and Freddie Mac will tick up to $510,400, making FHA’s floor limits 65 percent of their conforming-loan counterparts.
HERA also requires that the FHA to set its ‘ceiling’ loan limit for expensive metros at 150 percent of the national conforming limit. The new FHFA conforming loan ceiling will rise in 2020 to $765,600, the same as FHA maximum limits.
FHA loans can be helpful for homebuyers with smaller down payments, less-than-excellent FICO scores and a tighter homebuying budget. To be eligible for an FHA loan, borrowers must have a FICO score of 500 to 579 with 10 percent down or a FICO score of 580 or higher with 3.5 percent down, along with verifiable employment history or income. Additionally, FHA loans can only be used for primary residences.
Country’s wealthiest zip codes get “vaulted” ceiling
The majority of housing markets with high ceilings were concentrated in the San Francisco-Oakland-Berkeley; Washington-Arlington-Alexandria; and New York-Newark-Jersey City metro areas.
Within this list are the five most expensive housing markets, according to NAR Q2 data. That includes San Jose-Sunnyvale-Santa Clara, Calif., metro area (median existing single-family price was $1,240,000); San Francisco-Oakland-Hayward, Calif. ($964,000); Anaheim-Santa Ana-Irvine, Calif. ($826,000); Urban Honolulu, Hawaii ($813,50); and Los Angeles-Long Beach-Glendale. Calif., ($649,600).
A few counties saw massive drop in loan limits
Not all counties got a bump in loan limits. There were a handful of places where the FHA reduced limits, some as much as 51 percent. Dutchess County and Orange County, both in the Poughkeepsie-Newburgh-Middletown, New York metro area were hit with a 51 percent reduction, going from $726,525 in 2019 to $356,500 in 2020, a massive $370,025 difference.
Lincoln County, in Hailey, Idaho, came in second place with a 49 percent drop in limits going into 2020. Last year, their ceiling was $726,525 and starting next year it will be $356,500, a $370,025 difference.
FHA raises reverse mortgage limits
FHA-insured Home Equity Conversion Mortgages (HECMs), also known as reverse mortgages, got a jump in limits, too.
The FHA raised the limits on HECMs to $765,600 for all areas, an increase of $39,075 from 2019’s $726,525 limit. This change effective for all case numbers assigned on or after January 1, 2020 through December 31, 2020.