Top 10 Reasons the 2020 Conforming Loan Limits Help Borrowers

For the 4th year in a row, Fannie Mae and Freddie Mac conforming loan limits have increased. For loan closings in 2020, the single family home loan limit has increased by $26,050 compared to 2019. Now, the conforming loan limits for single family homes throughout most of the U.S. is $510,400. Additionally, those looking to buy or refinance two – four unit properties have a significant increase. Furthermore, higher cost counties have an increase to $765,600 for 2020 high balance conforming loans. Check out the charts below, plus see how this increase affects more programs than you thought!

conforming loan limits
2020 Conforming Loan Limit Benefits

10 Reasons That Increased Conforming Loan Limits Help

First of all, do not think that this only helps those borrowers with 20% down payment. The new 2020 conforming loan limits enhances many borrower programs and even helps sellers! Here is a top list for how this increase helps Fannie, Freddie, and more programs.

  1. HomeReady 3% down payment
  2. Home Possible 3% down payment
  3. Conforming 3% down payment – For higher income borrowers
  4. Rental property purchase or refinance (cash out or rate / term)
  5. Construction perm one-time close up to 95% – This means 95% construction financing up to a $537,263 price!
  6. VA loan bonus entitlement – Having 2 VA loans at once
  7. Second home purchase, build, or refinance
    • 90% construction perm to build your vacation home
    • Purchase a second home with 10% down
    • Cash out refinance your second home
    • Lower your interest rate on your second home
  8. Conventional down payment assistance programs use conforming loan limits
  9. Duplex, triplex, and 4 unit home purchase or refinance
  10. High balance purchase or refinance up to 95%

2020 Conforming Loan Limit Chart

Units 2020 Conforming Limits 2020 High Balance Limits
1 $510,400 $765,600
2 $653,550 $980,325
3 $789,950 $1,184,925
4 $981,700 $1,472,550

2 – 4 Unit MultiFamily Loans

Notice on the chart above how dramatically the loan limits increase when 2 – 4 unit properties are involved. Therefore, investors are able to use conforming loan limit benefits to finance wealth building properties. And that is what multifamily properties are, creators of wealth! Just think, one could purchase a 4 unit property, live in one unit, and rent out the other 3. Rental income from 2 or 3 of the units may cover the whole mortgage payment. Potentially resulting in a the owner basically living in a unit for free.

Buy over a $500,000 Home with 3% Down Payment!

Of course, half a million dollars sounds like a lot to many. But, housing prices in many cities may easily climb into this price range. Affording the monthly payment may not be an issue, but saving the down payment is tougher. Buying a home in Raleigh, Charlotte, Richmond, Atlanta, Charleston, and many more cities need this increased conforming loan limit. Depending on the borrower’s qualification, several 3% down payment programs exist. If the down payment is still a stretch, the buyer may receive gift funds. Furthermore, down payment assistance could even cover these funds! Whether a first time or repeat buyer, there are plenty of options to buy!

Vacation Home Benefits

Raising the conforming loan limits increases the chance of making a vacation home a reality. Whether the goal is to build or purchase a second home with as little as 10% down payment, using a conforming loan provides affordability. Furthermore, the increase may make a current second home even more affordable. Before the vacation property may have been financed with a jumbo loan, yet now it could be refinanced to more attractive financing. Additionally, a cash out refinance of a second home could help finance home improvements or other needs. Maybe even purchase an investment property.

Buying or Refinancing a Rental Property up to $500,400

Most loan types only provide financing for primary residences, but conforming loans allow for rental properties. Rental properties have long provided many owners with residual income and wealth creation. So whether it is a purchase, lowering rate and payment, or receiving cash out, the higher conforming loan limits provide better rental cash flow and wealth creation.

Yes, Fannie & Freddie Limits Affect VA Loans

Until 2019, all VA loans have been affected by conventional loan limits. Whether a VA eligible borrower had full entitlement or used bonus entitlement, these limits determined the outcome. Although, there are huge new VA loan limit rules effective January 1, 2020! VA eligible borrowers with full entitlement may borrow 100% of the purchase price with no loan limit! That’s right, no more VA jumbo loans with down payment.

UNLESS…there is not full entitlement. In these cases, the conforming loan limits do determine how much the VA loan may be. This is called using one’s VA bonus entitlement. Bonus entitlement comes into play when there is a previous VA foreclosure or short sale loss as well when a Veteran wants to have two VA loans at once.

Want to Build, Purchase, or Refinance?

Give me a call to find the right strategy for financing your residence, vacation home, or rental. There is no better motivation than helping someone achieve their dreams or improve their bottom line!

Russell Smith mortgage lender
Your experienced mortgage lender

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Written By: Russell Smith