2019 VA Loan Limits Up With Home Prices
On November 27, 2018, the VA announced updated VA loan limits for 2019, with the limit for most U.S. counties and territories increasing by nearly 7%. Higher loan limits will increase the percentage of homes that can potentially be financed with a VA loan and no down payment. This enhances the impact of the VA loan benefit for Veterans, especially considering that home prices have risen steeply for several years, making saving for a down payment more challenging for those who don’t enjoy this benefit.
VA loan limits have increased for three years in a row. The 2019 limits are set at $484,350, an increase of $31,250, from the previous year. The ceiling for high-cost counties also increased, to $726,525, up from $679,650 in 2017. Veterans have gains in home values to thank for the hike in loan limits, as all nine regions of the country saw an annual rise in home prices in 2019. The Mountain region saw the most gain at just under 9%.
2019’s VA loan limits may be good for Veterans who are hunting for a more expensive home. With soaring limits, a qualified borrower may be able to get a larger loan without having to cough up cash for a down payment. But, potential borrowers may need to watch for rising interest rates. According to Freddie Mac’s Primary Monthly Mortgage Survey (PMMS), 30-year rates ended 2017 just under 4%. But for 2018, rates will finish a whole point higher, just under 5%.
Freddie Mac predicts rates will continue to increase to 5.1% by the end of 2019. And while the government mortgage entity (GME) reports that higher rates and home prices may be discouraging for most borrowers, the professionals at Veterans First Mortgage have a different outlook and suggest that buying a home early in 2019 may be a solid strategic move. Homebuyers in Q1 2019 will be able to take advantage of higher loan limits, a robust housing market, and (relatively) competitive interest rates.
VA Loan Limits Explained
VA loan limits don’t “limit” the amount a Veteran can borrow using their home loan benefits, as the name implies. Instead, loan limits are the maximum loan amount that the VA is willing to back without a down payment. Typically, about 25% of a Veteran’s VA loan, up to the limit, is guaranteed for the lender by the government. For loans over the limit, lenders will ask the borrower to secure 25% of the amount above the limit in the form of a down payment. But with the new loan limit at $484,350, and the average VA loan being around $255,000, it is reasonable to expect that most loans will be obtained without a down payment.
How Are Baseline Loan Limits Calculated?
A baseline loan limit is simply the loan limit for most U.S. counties and territories where home prices are more in line with the national average. Over a decade ago, the baseline loan limit was $417,000, as defined by the Housing and Economic Recovery Act (HERA) of 2008. Generally, loan limits are intended to reflect home prices in a specific location. But due to the 2008 housing crisis, it took time for the market to recover, and due to stipulations in HERA, the baseline loan limits stayed at $417,000 for nearly a decade.
Then in 2016, home prices rose almost everywhere. The FHFA published its third-quarter house price index (HPI), showing that the average prices had risen 1.7% above Q3 2007, which was right before the housing bubble burst. As a result, the baseline loan limit for 2017 was adjusted to reflect the correction in the housing market. Loan limits rose again for 2018. And due to a robust 2018 housing market, home prices rose again in almost all 50 states. Hence, VA loan limits are up again for 2019.
High-Cost Areas Have a New Ceiling of $726,525
Some areas of the country have very expensive homes, and to accommodate this, limits in certain places are higher than the baseline limit of $484,350. By FHFA’s definition, high-cost housing areas have at least 115% of their local median home values over the baseline loan limit. In other words, these are areas where the average home is notably more expensive. Limits in these areas are set at the median home value, rather than the baseline. This makes it more feasible for Veterans to utilize their benefits in expensive housing markets with zero-down VA loans.
Higher Loan Limits Reflect Rising Home Prices
Across the country, home prices are steadily increasing.
Here are some of the significant findings from the third quarter (Q3) 2018 HPI report:
• All 50 states and 99 of the 100 major metro areas saw home prices rise from a year ago.
• The five top-growth states were: 1) Idaho 15.1%; 2) Nevada 15.0%; 3) Washington 10.6%; 4) Utah 10.0%; and 5) Colorado 9.2%.
• The strongest metro area was Boise, ID, up 20.1%.
• The weakest metro area was Honolulu, HI (urban) down 5.2%.
• The strongest region was the Mountain Region, up 8.9% from last year.
• The regions with the lowest increases were New England, Middle Atlantic, and West South Central, all up less than 5% since Q3 2017.
According to data from FHFA, home prices increased from Q3 2014 to Q3 2015 by 5.7%, then by 6.1% from Q3 2015 to Q3 2016, and by 6.5% from Q3 2016 to Q3 2017. For Q3 2018, prices are up 6.3% annually. This is a much more rapid pace than the 4.9% increase FHFA predicted in its forecast.
Predicting the Future of Loan Limits
FHFA forecasts that the percent growth in home prices for 2019 will slow to a pace of 3.2%. And VA loan limits have traditionally followed housing market trends. So, if the home prices keep increasing, and no action is taken by the federal government to change how the limits are calculated, 2020 loan limits will likely rise as well.
For information about a VA loan in your area, get in touch with one of our team members here at Veterans First Mortgage.
VA Loan Limit Table
Are you curious about your current loan limits? Look yours up using the VA loan limit table below. If you don’t see your county, you can assume your current loan limit is the baseline $453,100. The loan limit table lists only high-cost places where limits are over the baseline. Loan limits are updated for each year on January 1st.
If you have questions, speak to one of our VA specialists at 800-217-1596.