By: Lisa Sturtevant, PhD Chief Economist, Virginia REALTORS^®

The Federal Housing Finance Agency (FHFA) has announced that the conforming loan limit will be raised to $510,400, up $26,050 from $484,350 in 2019. The FHFA sets higher loan limits for 70 high-cost counties in the U.S., including several counties in Northern Virginia. The 2020 limit in these high-cost areas was increased by $39,075 to $765,600. Despite an increase to conventional loan limits, potential homebuyers in Virginia probably won’t see much of a benefit.

Statewide (outside of the DC suburbs) there are only around 300 homes listed for sale that might be eligible for conventional financing in 2020 but were not in 2019 because of the lower limit. In the DC suburbs, the higher loan limit in 2020 made around 100 additional homes listed for sale eligible for conventional financing.

So, there are only slightly more homes statewide available priced under the new 2020 loan limits. In addition to a negligible impact on available homes eligible for a conventional mortgage, the actual benefits associated with conventional mortgage rates have largely disappeared.

Mortgages that meet the conforming loan limit caps are known as “conforming loans” and are eligible for backing by Fannie Mae and Freddie Mac. In the past, conforming loans had lower mortgage rates than non-conventional, or jumbo, loans. However, since 2013, a jumbo loan has been cheaper to borrow than a conventional loan. As a result, the increase in loan limits likely will not have an impact on a potential homebuyer’s ability to finance a home in Virginia.

But there could be an important impact on homebuyers using a VA loan. In 2020, limits for VA loans were actually removed entirely. (VA loans had been subject to similar loan limits as loans back by Fannie Mae and Freddie Mac.) VA-backed home loans provide eligible veterans an option to purchase a home without a down payment by guaranteeing part of the loan. In 2019, VA loans were used for about 23,000 home purchases in Virginia, which is nearly one out of five home sales transactions in 2019. The lifting of the limits on the loan amount could be a boon for veterans looking to buy a home particularly in higher-cost areas.  For example, in the Northern Virginia suburbs of Washington DC, about 30% of the homes listed for sale have list prices above $765,000 (the high-cost conventional loan limit).  Under the new VA rules, homes with a mortgage above this level are eligible for financing through the VA but would not have been in 2019.