The Federal Housing Administration (FHA) issued their 2020 loan limits and the good news for homeowners in California is that they’ve increased their loan limits for most areas. The FHA increase in loan limit size is a big win for homeowners in California as it will open the door to additional opportunities for many current and potential homeowners. The most popular Federal Housing Administration loan program is the 30 year fixed rate loan program and the 15 year fixed rate loan program and those will continue to be offered in 2020.
2020 Increase In California FHA Loan Limits:
As it’s been reported in the news; we’ve seen significant jumps in housing prices over the last 12 months and because of this FHA is able to raise their floor and ceiling loan limits.
Here Are The Updated 2020 California FHA Loan Limits:
- $331,760 – most counties
- $765,600 – this is the new limit for high cost counties
The FHA loan limit increase will open the door to more California homeowners that want access to the FHA loan program. These limits apply to purchase and refinance transactions. FHA loan limits in California for 2019 were $314,827.00 ($726,525). And in 2018 it was $294,515 ($679,650).
For most the country, over 3,200 counties, the FHA loan limit will decrease in just a few counties throughout the country (eleven counties). The increase is from the previous level of $314,827.00 to $331,760 which is nearly an $18,000 increase. In high cost areas the FHA loan limit goes increases from $726,525,00 $765,600 – that is an increase over $39,000. This increase will allow California homeowners new opportunities and should help keep housing stable. Somewhat low mortgage rates in 2018 helped home sales and that looks to continue into 2019.
Why the increase?
According the Federal Housing Finance Agency (FHFA) their home price index increased 5% over the previous year measurement. The strong housing market in 2019, helped by decreasing interest rate, pushed values higher which allowed the limits to be raised. Every year FHFA announces an update to loan limits; some years it increases and some years it remains flat.
If you’d like a county by county breakdown (for each state) then checkout the easy to use search function on HUD’s website. Before raising the FHA loan limits; the Federal Housing Finance Agency raised conforming loan limits across the country from $484,350.00 to $510,400. That is a sizable increase and it ultimately will help thousands of homeowners in California.
Higher Loan Limits and Higher Mortgage Rates:
If you like in one of the high cost counties and want a FHA loan amount between $331,761 and $765,600 you are going to pay a higher interest rate than someone who has a loan amount at or below $331,761. The process and general qualifications are the same but the interest rate is higher.
How much higher?
It mostly depends on the market but generally speaking your interest rate is going to be between 0.125% and 0.375% higher than those with a loan amount at or below $331,761.
A Great Option For Some Homeowners:
A FHA loan is not for everyone however it does provide an opportunity for thousands of Californian’s every year to either refinance their current mortgage or purchase a new home. FHA loan programs typically come with lower rates (compared to conforming loan programs) however they do come with Mortgage Insurance (MI). More on what Mortgage Insurance is below.
Do you know FHA loans come with Mortgage Insurance?
Mortgage Insurance (MI) is not homeowners insurance. Mortgage Insurance is an insurance policy that you pay each month (along with your mortgage payment, property taxes and property insurance) that protects the lender in case you default on your loan. While no one wants to pay extra payment each month; the FHA loan program does open the door to new opportunities for those with less than perfect credit, high debt-to-income ratios and/or low downpayment. The program is not perfect but is great for certain current and potential homeowners. All FHA loan limits in California, standard and high cost, are subject to Mortgage Insurance – no exceptions.
There is also an Upfront Mortgage Insurance Premium that is paid at the time of closing. The payment is one lump sum and is either added to the loan or the interest rate is increased to cover the cost. For more information about Mortgage Insurance and FHA loans in general please be sure to check out our FHA home loan guide.
Paying Off An FHA Loan:
When you go to payoff a FHA loan, under the old FHA loan limits in California and the new limits for 2020, you’ll owe daily interest. Unlike conforming loans you’ll owe daily interest for the entire month no matter what day you close. For Conforming loans you’ll only owe interest to the day you’r loan is paid off. So if you are selling your home or if you are refinancing your current mortgage, and you have a FHA loan, you’ll want to close and payoff the original FHA mortgage at the end of the month (rather than the first few weeks).
Interested In Conforming Loan Limits?:
Some homeowners are looking for Conforming Loan Limits and there are additional opportunities for homeowners under Fannie Mae or Freddie Mac lending guidelines. As mentioned above the ceiling for conforming loan amounts was also raised recently and this should help the housing market in 2019. At JB Mortgage Capital, Inc. we offer low FHA mortgage rates and one-one-one personal service. If you are looking for a new FHA mortgage please be sure to give us a call at 1-800-550-5538 or send us a message from our website.