Dec. 17, 2018.
Homebuyers who can’t afford a 20-percent down payment could see big benefits from buying in 2019. Here’s why: FHA and VA loan limits are increasing in the new year — two mortgage programs known to be buyer-friendly and requiring little-to-no money down.
Buy more house with low- or no-down payment starting Jan. 1, 2019
Higher FHA and VA loan limits could be the light at the end of the tunnel for the nearly three out of four households who believe we’re in the midst of an affordability crisis. FHA and VA loans already have lower down payment and more flexible credit requirements, making them helpful to first-time buyers. Raising these loan limits keeps buyers, and especially first-time buyers, from being priced out in areas where housing prices keep rising.
Homebuyers, here’s what you can expect from the loan limit changes in 2019.
Limits for FHA loans:
- Like the recent conforming loan limit increases, new FHA loan floor limits in most of the U.S. will rise by nearly 7 percent, up to $314,827 on January 1, 2019.
- New FHA loan ceilings will increase to $726,525 in some high-cost areas.
- The U.S. Department of Housing and Urban Development will increase FHA loan limits in 3,053 counties in 2019, compared to only 188 counties in 2016.
- The maximum claim amount for FHA-insured HECMs (reverse mortgages) will also rise for the third year in a row to $726,525.
Limits for VA loans:
- VA loans that have a note date on or after January 1, 2019, now have a maximum of $484,350 in non-high-cost counties, without an additional down payment.
- VA loans with a note date on or after January 1, 2019, now have a ceiling of $726,525 in high-cost counties, without an additional down payment.
- Max loan amount by high-cost county can be found in the 1-Unit limit column of the FHFA table.
- New VA loan limits match the Federal Housing Finance Agency’s conforming loan limits recently announced for 2019.
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What is an FHA loan? How it works, plus 4 distinct benefits
A lot of homebuyers like FHA loans because, compared to other mortgage programs, they can be easier to qualify for. Notoriously first-time-buyer-friendly, FHA loans may be preferred by up to 41 percent of single female millennial borrowers. And then, there’s the fact that FHA loans don’t require a large down payment. FHA loans can also be used to refinance and potentially lower a monthly mortgage payment. Affordability is most likely the reason why FHA use boomed after the housing downturn in 2007 and still holds steady with 1.3 million new purchase and refinance mortgages insured in 2017.
Prequalifying for an FHA loan is straightforward and fairly easy, as long as you have:
- A FICO credit score of 580 or higher.
- Income verification in the form of pay stubs or tax returns.
- No past defaults on federal debt, government loans, or unpaid taxes.
- Plans to purchase a primary residence (and not a vacation home or rental).
There are many, but here are four of the biggest reasons FHA loans remain so popular:
- Lower down payment. With an FHA loan, you can get into a new home with a minimum of 3.5 percent down. FHA loans require much less cash up front, though Mortgage Insurance (MI) will likely be tacked on for the full loan term. Putting down 10 percent could allow you to drop your MI in 11 years. It may also be an option to finance upfront mortgage insurance into your loan, another way to help you boost buying power, qualify for a larger loan amount, and reduce your mortgage payment by eliminating monthly MI.
- Gifted down payments. FHA loan terms allow a friend, relative, or state or local agency to provide you with down payment funds in the form of a gift. And, you can also cosign with another party who might not be living in your home — like a parent — to help you qualify.
- Flexible credit. Plenty of first-timers appreciate the looser credit and income requirements associated with an FHA. Since it’s guaranteed by the Federal Housing Administration, even those with a low credit score, limited employment history, or working self-employed might qualify.
- Wiggle room for financial setbacks. Student loan debt and poor credit may also be non-issues when applying for an FHA. This loan type is more forgiving of short-term financial woes. Just make sure you’re up-to-date on your student loan payments and have a DTI (debt-to-income ratio) that proves you can handle your estimated monthly mortgage.
The FHA loan is a solid program that can help get you home sooner if you don’t have 20-percent down. (This should be a relief for the average student loan borrower carrying $39,400 in debt.) Still, FHA loans aren’t for everyone and can have some drawbacks, like the added cost of monthly mortgage insurance, property limitations that might exclude a fixer-upper and some condo units, and less attention from sellers when using this first-time-buyer-friendly loan program in a hot market.
What is a VA loan? How it works, plus 4 distinct benefits
VA, or Veterans Affairs, loans come with a long list of benefits, making them another popular pick for the veterans or U.S. Armed Forces service members who qualify. Notably, VA purchase loan use has increased by 59 percent in the past five years. Eligible veterans and service members gravitate toward this specialty loan program because it can make buying or refinancing easier. VA loans typically don’t require a down payment, and they don’t have a monthly mortgage insurance add-on. VA loans also normally come with lower mortgage interest rates, reflected in a lower monthly payment.
Like the FHA, prequalifying for a VA loan can be straightforward and easy if you:
- Currently serve or meet service requirements (or are a surviving spouse who hasn’t remarried).
- Have a FICO credit score of 580 or higher.
- Provide proof of stable income, though no income threshold is required.
- Use the loan to purchase a primary residence (no vacation homes or rentals).
For those who qualify, VA loans also have four major benefits:
- No down payment. The Department of Veterans Affairs backs VA loans to support veterans and servicemembers and sweetens the pot by eliminating the loan’s down payment. Most of the time, you can use a VA loan to get into a new home with no money down, unless you’ve exceeded the loan entitlement limit. But with the new loan limits for 2019, exceeding the VA loan max is less likely. If you do, expect to pay a small down payment.
- No mortgage insurance. You can use a VA loan to avoid a down payment and get home scot-free, without the added cost of mortgage insurance. An FHA loan may require upfront and monthly mortgage insurance when putting less than 20 percent down. But for a VA borrower, the same insurance premium won’t apply.
- Lower rates. VA loans can provide a buffer when rates are rising as they’re known for having lower interest rates than conventional mortgages. VA loan rates sat 0.22 percent below FHA loan rates in Ellie Mae’s Origination Insight Report for October 2018. This potential for lower mortgage interest can be helpful for homeowners ready to refinance. Refinancing with a VA loan at a lower rate could stabilize (when moving from adjustable to fixed-rate) or lower your monthly payment.
- Fewer upfront fees. Add this to the list of more money-saving benefits for VA borrowers. Closing costs on VA loans are limited. A seller can also chip in and pay up to 4 percent in concessions. And, a VA loan’s upfront funding fee may be financed into the total loan amount to reduce your out-of-pocket expenses and decrease your monthly mortgage payment.
VA loans also aren’t for everyone. They’re only available to the select group who qualify. For those who do, it helps to keep in mind that a funding fee will be attached and likely financed into the loan — something you won’t find with a conventional or FHA mortgage. And like FHA loans frequently used by first-time buyers, some sellers could be resistant to offers made from VA borrowers in a more competitive market.
Let’s solve your down payment dilemma
This year could be your year to buy bigger or better, thanks to the new loan limits increasing in your state. Just click here to make mortgage easy: Get prequalified in minutes and find out how much house you can afford without the big down payment standing in your way.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.