With the FHFA’s HPI showing increased home prices nationally, expecting Conventional, VA and FHA max loan limit increases in 2020 is reasonable.
**UPDATE** 2020 CONVENTIONAL LOAN LIMITS LISTED HERE
It’s that time of year. The time we expect 2020 VA, Conventional and FHA loan limits to be announced. The question – Will 2020 VA, Conventional and/or FHA loan limits increase from 2019 levels?
VA, Conventional and FHA Loan Amounts Based on FHFA
VA, Conventional and FHA approach their respective 2020 maximum loan amount math differently. However, they all base it on the one common element. The drum behind the beat of all 3 max loan amounts is FHFA’s Annual maximum Conforming Loan Limit.
“The FHFA HPI reported a 0.2 percent increase in US house prices in August  from the prevoius month. From August 2018 to August 2019 house prices were up 4.6 percent.”
FHFA (which stands for Federal Housing Finance Agency) was born in 2008. HERA – Housing and Economic Recovery Act of 2008 – gave birth to FHFA and charged it with 3 Goals:
- Ensure Safe and Sound Regulated Entities
- Ensure Liquidity, Stability and Access in Housing Finance
- Manage Fannie Mae and Freddie Mac’s Ongoing Conservatorships
HERA requires FHFA’s max loan limit update each year to reflect national average home price. The FHFA uses the House Price Index or “HPI” Report to publish monthly Home Price increases or decreases. Both month over month and year over year data is reported in the HPI. Most recently, the HPI Reports for August 2019 revealed that “from August 2018 to August 2019 House Prices rose 4.6 percent”. This certainly bodes well for 2020 maximum loan amount increases.
Annual Loan Limit Increases Are Back in Style
VA, Conventional and FHA loan limits stagnated from 2007 up until 2017. In fact, from 2007 to 2016 Conventional Loan Limits sat idly at $417,000. Then, in 2017 based on the HERA rule mentioned above VA, Conventional and FHA loan limits all increased. Furthermore, each increased again in both 2018 and 2019.
Based on HERA tying FHFA’s max Conforming loan amount to average housing prices PLUS VA, Conventional and FHA all basing their maximum loan amounts off of FHFA’s annual limit we can accurately predict loan amounts. The question “Will VA, Conventional or FHA loan amounts rise for 2010?” is pretty simple to answer.
In conclusion, assuming the average home price data shows prices rose in 2019 compared to 2018 we will see a 2020 loan amount increase for VA, Conventional and FHA home loan products.
The Math Behind Max Loan Amounts
VA, Conventional and FHA all base their maximum loan amounts on FHFA’s max conforming loan limit for the year. However, below is how each loan type uses the FHFA in determining it’s maximum:
- Conventional: Maximum loan amount is equal to FHFA’s maximum loan amount
- VA: Maximum loan amount is equal to FHFA’s maximum loan amount (learn more about VA JUMBO)
- FHA: Using FHFA’s maximum loan amount, FHA establishes a ceiling max loan amount and a floor max loan amount. Learn more about FHA ceiling and floor.
By Jeremy House